COF 10-K diff: FY 2024-12-31 → FY 2025-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+205 paragraphs −150 paragraphs ~150 changed
FY 2024-12-31 (earlier)
Item 1A. Risk FactorsThe following discussion sets forth what management currently believes could be the material risks and uncertainties that could impact our businesses, results of operations and financial condition. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic and political climate may amplify many of these risks.Summary of Risk Factors
The following is a summary of the Risk Factors disclosure in this Item 1A. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our securities.• The consummation of the Transaction is contingent upon the satisfaction of a number of conditions, including regulatory approvals, that may be outside either party’s control and that either party may be unable to satisfy or obtain or which may delay the consummation of the Transaction or result in the imposition of conditions that could reduce the anticipated benefits from the Transaction or cause the parties to abandon the Transaction.
• We expect to incur substantial expenses related to the Transaction and to the integration of Discover, and the expenses may be greater than anticipated due to unexpected events.
• We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected due to factors that may be outside our control or Discover’s control. We may also encounter significant difficulties in integrating Discover.
• Our future results may suffer if we do not effectively manage our expanded operations following the Transaction.
• While the Transaction is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect our business and operations.
• Changes and instability in the macroeconomic environment could disrupt capital markets, reduce consumer and business activity, and weaken the labor market, all of which could impact borrowers’ ability to service their debt obligations and adversely impact our financial results.
• Fluctuations in interest rates could adversely affect our business, results of operations and financial condition.
• We may not be able to maintain adequate sources of funding and liquidity to operate our business.22
Capital One Financial Corporation (COF)
Table of Contents• We may experience increases in delinquencies and credit losses, or we may incorrectly estimate expected losses, which could result in inadequate reserves.
• We may not be able to maintain adequate capital or liquidity levels or may become subject to revised capital or liquidity requirements, which could have a negative impact on our financial results and our ability to return capital to our stockholders.
• Limitations on our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends and repurchase our common stock.
• A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.• We face risks related to our operational, technological and organizational infrastructure .
• A cyber-attack or other security incident on us or third parties (including their supply chains) with which we conduct business, including an incident that results in the theft, loss, manipulation or misuse of information (including personal information), or the disabling of systems and access to information critical to business operations, may result in increased costs, reductions in revenue, reputational damage, legal exposure and business disruptions .
• We face risks resulting from the extensive use of models and data, as well as from our evolving use of AI .
• Fraudulent activity associated with our products could cause our fraud losses to increase, the use of our products to decrease and our brands to suffer reputational damage, all of which could have a material adverse effect on our business.• Compliance with new and existing domestic and foreign laws, regulations and regulatory expectations is costly and complex, and any significant changes may adversely affect our business.
• Our required compliance with applicable laws and regulations related to privacy, data protection and data security, in addition to compliance with our own privacy policies and contractual obligations to third parties, may increase our costs, reduce our revenue, increase our legal exposure and limit our ability to pursue business opportunities.
• Our businesses are subject to the risk of increased litigation, government investigations and regulatory enforcement.
• We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations.• Our business, financial condition and results of operations may be adversely affected by legislation, regulation and merchants’ efforts to reduce the interchange fees charged by credit and debit card networks to facilitate card transactions.• If we are not able to invest successfully in and introduce digital and other technological developments across all our businesses, our financial performance may suffer.
• We may fail to realize the anticipated benefits of our mergers, acquisitions and strategic partnerships.
• Reputational risk and social factors may impact our results and damage our brand.
• If we are not able to protect our intellectual property rights, or we violate third-party intellectual property rights, our revenue and profitability could be negatively affected.
• Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk.
• Our business could be negatively affected if we are unable to attract, develop, retain and motivate key senior leaders and skilled employees.
• We face risks from catastrophic events.
• Climate change manifesting as physical or transition risks could adversely affect our businesses, operations and customers and result in increased costs.23
Capital One Financial Corporation (COF)
Table of Contents• We face risks from the use of or changes to assumptions or estimates in our financial statements.
• The soundness of other financial institutions and other third parties, actual or perceived, could adversely affect us.Risks Relating to the Acquisition of Discover
We have identified certain additional risk factors in connection with the Merger Agreement and the proposed Transaction. For additional information concerning these risks, uncertainties and assumptions, please refer to the section entitled “Risk Factors” included in our joint proxy statement/prospectus included in the registration statement declared effective by the SEC on January 6, 2025.
The consummation of the Transaction is contingent upon the satisfaction of a number of conditions, including regulatory approvals, that may be outside either party’s control and that either party may be unable to satisfy or obtain or which may delay the consummation of the Transaction or result in the imposition of conditions that could reduce the anticipated benefits from the Transaction or cause the parties to abandon the Transaction.
Consummation of the Transaction is contingent upon the satisfaction of a number of conditions, some of which are beyond either party's control, including, the receipt of the requisite regulatory approvals and the absence of any order, injunction, decree or other legal restraint preventing the completion of the Transaction.
Each party’s obligation to complete the Transaction is also subject to certain additional customary conditions, including:
• subject to certain exceptions, the accuracy of the representations and warranties of the other party;
• performance in all material respects by the other party of its obligations under the Merger Agreement; and
• receipt by such party of an opinion from its counsel to the effect that the Merger and the Second Step Merger, taken together, will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
These conditions to the closing of the Transaction may not be fulfilled in a timely manner, or at all, and, accordingly, the Transaction may not be completed. In addition, the parties can mutually decide to terminate the Merger Agreement at any time, or either party may elect to terminate the Merger Agreement in certain other circumstances.
As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations, obligations or costs or place restrictions on our conduct after the closing of the Transaction. Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of the Transaction or of imposing additional costs or limitations on us following the Transaction, any of which may have an adverse effect on us.
Either party may also be subject to lawsuits challenging the Transaction, and adverse rulings in these lawsuits may delay or prevent the Transaction from being completed or require either party to incur significant costs to defend or settle these lawsuits. Any delay in completing the Transaction could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Transaction is successfully completed within its expected time frame.
We expect to incur substantial expenses related to the Transaction and to the integration of Discover, and the expenses may be greater than anticipated due to unexpected events.
We have incurred and expect to incur a number of significant non-recurring costs associated with the Transaction and the integration of Discover. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit‐related costs, public company filing fees and other regulatory fees, financial printing and other printing costs and other related costs. In addition, we will incur integration costs following the completion of the Transaction as we integrate Discover’s business with ours, including facilities and systems consolidation costs and employment-related costs. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits.
While we have assumed that a certain level of costs will be incurred, there are many factors beyond our control that could affect the total amount or the timing of these expenses. Moreover, many of the expenses that we will incur are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to24
Capital One Financial Corporation (COF)
Table of Contentsachieve from the elimination of duplicative expenses and the realization of economies of scale. These expenses may result in us recording increased expenses as a result of the Transaction or the integration of Discover, and the amount and timing of such charges are uncertain at the present and could exceed initial estimates.
We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected due to factors that may be outside our control or Discover’s control. We may also encounter significant difficulties in integrating Discover.
We may fail to realize the anticipated benefits of the proposed Transaction, including, among other things, anticipated revenue and cost synergies, due to factors that may be outside either party’s control. These factors include, but are not limited to, changes in laws or regulations or the implementation or interpretation of laws or regulation due to changes in government or general economic, political, legislative or regulatory conditions. For example, debit card transactions on three-party networks—comprising the cardholder, merchant and network provider—could become subject to the Federal Reserve’s Regulation II limitation on interchange fees or its prohibition on network exclusivity, and other changes in laws or regulation could impose additional limitations on the fees issuers or networks can charge on debit or credit card transactions or require merchants to be provided an alternative network for transaction routing, any of which may have an adverse effect on our business. Other factors that may impact our ability to achieve the anticipated benefits of the proposed Transaction include the outcome of any legal or regulatory proceedings that may be currently pending or later instituted against us (before or after completion of the Transaction) or against Discover, including those related to Discover’s card product misclassification issue. As a result of the Transaction, we will be the legal successor to Discover and as a result we will assume the risks relating to actions that may be currently pending or later instituted against Discover, as well as any ongoing expense in defending and resolving these actions, and may be subject to reputational and other risks associated with Discover’s actions.
Both parties have operated and, until the completion of the Transaction, will continue to operate, independently. The success of the Transaction, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully integrate Discover’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or materially decrease revenues due to loss of customers, as well as our ability to successfully integrate Discover into our Framework, compliance systems and corporate culture, which we believe will require extensive investment, including to enhance the risk management function at Discover consistent with our risk management standards and those of regulators, as well as to address remediation obligations under existing and possible future regulatory orders. The costs of these investments may be greater than anticipated and the benefits thereof may take longer than expected to realize. The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of momentum in, the activities of one or more of our businesses following the completion of the Transaction. Inconsistencies in standards, controls, procedures and policies between us and Discover could adversely affect us following the completion of the Transaction. The diversion of management’s attention and any delays or difficulties encountered in connection with the Transaction and the integration of Discover’s operations could have an adverse effect on our business, financial condition, operating results and prospects.
An inability to realize the full extent of the anticipated benefits of Transaction, as well as any delays encountered in the integration process, could have an adverse effect on our revenues, levels of expenses and operating results following the completion of the Transaction.
Our future results may suffer if we do not effectively manage our expanded operations following the Transaction.
Following the Transaction, the size and scope of our business will increase significantly beyond our current size and scope. Our future success depends, in part, upon the ability to manage our expanded businesses, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Transaction.
In addition, following the Transaction, we may be subject to increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the Transaction or the size, scope and complexity of our business operations, which may have an adverse effect on our business, operations or stock price.
While the Transaction is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect our business and operations.25
Capital One Financial Corporation (COF)
Table of ContentsUncertainty about the effect of the Transaction on employees, customers, suppliers and other persons with whom we or Discover have a business relationship may have an adverse effect on our business, operations and stock price. Existing customers, suppliers and other business partners of ours and of Discover could decide to no longer do business with us or with Discover before the completion of the Transaction or with us after the Transaction is completed, reducing its anticipated benefits. Both parties are also subject to certain restrictions on the conduct of our respective businesses while the Transaction is pending. As a result, certain projects may be delayed or abandoned and business decisions could be deferred. Employee retention may be challenging for Discover before completion of the Transaction, as certain employees of Discover may experience uncertainty about their future roles with us following the Transaction, and these retention challenges will require us to incur additional expenses in order to retain key employees of Discover. If key employees of Discover depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Discover or with us following the Transaction, the benefits of the Transaction could be materially diminished.General Economic and Market RisksChanges and instability in the macroeconomic environment could disrupt capital markets, reduce consumer and business activity, and weaken the labor market, all of which could impact borrowers’ ability to service their debt obligations and adversely impact our financial results.
Changes or instability in the macroeconomic environment may impact payment patterns, consumer spending, and credit losses. Because we offer a broad array of financial products and services to consumers, small businesses and commercial clients, our financial results are impacted by the level of consumer and business activity and the demand for our products and services. A prolonged period of economic weakness, volatility, slow growth, or a significant deterioration in economic conditions, in the countries in which we operate, could have a material adverse effect on our financial condition and results of operations as customers or commercial clients default on their loans, maintain lower deposit levels or, in the case of credit card accounts, carry lower balances and reduce credit card purchase activity.
Some of the factors that could disrupt capital markets, reduce consumer and business activity, and weaken the labor market include the following:
• Monetary policy actions, such as changes to interest rates, taken by the Federal Reserve and other central banks, such as the central banks in the United Kingdom and Canada, and a growing fiscal deficit and increase in the U.S. debt to gross domestic product ratio;
• Fiscal policy actions, such as changes to applicable tax codes;
• Geopolitical conflicts or instabilities, such as the war between Ukraine and Russia and the conflict in the Middle East, and increased geopolitical tensions between the U.S. and China;
• Trade wars, tariffs, labor shortages and disruptions of global supply chains;
• The effects of stalemates in the U.S. government, including government shutdowns whether recurring, prolonged or otherwise, developments related to the U.S. federal debt ceiling, default by the U.S. government on its debt obligations, or related credit-rating downgrades;
• Inflation and deflation, including the effects of related governmental responses;
• Concerns over a potential recession, which may lead to adjustments in spending patterns;
• Technology-driven disruption of certain industries, such as those due to advances in AI, robotics and cryptocurrency;
• Lower demand for credit and shifts in consumer behavior, including shifts away from using credit cards, changes in deposit practices, and changes in payment patterns; and
• Changes in usage of commercial real estate, which may have a sustained negative impact on utilization rates and values.
Decreases in overall business activity and changes in customer behavior may lead to increases in our charge-off rate caused by bankruptcies and may reduce our ability to recover debt that we have previously charged-off. Such changes may also decrease the reliability of our internal processes and models, including those we use to estimate our allowance for credit losses,26
Capital One Financial Corporation (COF)
Table of Contentsparticularly if unexpected variations in key inputs and assumptions cause actual losses to diverge from the projections of our models and our estimates become increasingly subject to management’s judgment. See “ We face risks resulting from the extensive use of models and data, as well as our evolving use of AI. ”Fluctuations in interest rates could adversely affect our business, results of operations and financial condition.Like other financial institutions, our business is sensitive to interest rate movements. Changes in interest rates could adversely affect the results of our operations and financial condition. For example, higher interest rates may increase our borrowing costs and may require us to increase the interest we pay on funds deposited with us and may reduce the market value of our securities holdings. If interest rates increase or if higher interest rates persist for an extended period of time, our expenses may increase further. On the other hand, lower interest rates could also adversely affect our business, results of operations and financial condition. If the rate of economic growth decreased sharply, causing the Federal Reserve to lower interest rates, our net income could be adversely affected. While higher interest rates generally enhance our ability to grow our net interest income, there are potential risks associated with operating in a higher interest rate environment. For example, some customers have been and may continue to be less willing or able overall to borrow at higher interest rates. Higher interest rates also have hindered and may continue to hinder the ability of some borrowers to support required loan payments.
Additionally, interest rate fluctuations and competitor responses to those changes may have a material adverse effect on our financial condition and results of operations, as customers or commercial clients default on their loans, maintain lower deposit levels or, in the case of credit card accounts, reduce demand for credit or (for existing customers) the level of borrowing or purchase activity. For example, increases in interest rates increase debt service requirements for some of our borrowers, which may adversely affect those borrowers’ ability to pay as contractually obligated. This could result in additional or fluctuating delinquencies or charge-offs and negatively impact our results of operations. These changes could reduce the overall yield on our interest-earning asset portfolio.
We assess our interest rate risk by estimating the effect on our net interest income and earnings, economic value and capital under various interest rate scenarios of different direction and magnitude. We take risk mitigation actions based on those assessments. For example, the Company employs various hedging strategies to mitigate the interest rate, foreign exchange, and market risks inherent in many of our assets and liabilities. The Company’s hedging strategies rely considerably on assumptions and projections regarding our assets and liabilities as well as general market factors. If any of these assumptions or projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates, foreign exchange rates, and other market factors, the Company may experience volatility in our earnings that could adversely affect our profitability and financial condition. We face the risk that changes in interest rates could materially reduce our net interest income and our earnings, especially if actual conditions turn out to be materially different than those we assumed.
Changes in valuations in the debt and equity markets could have a negative impact on the assets we hold in our investment portfolio. Such market changes could also have a negative impact on the valuation of assets for which we provide servicing. See “Part II—Item 7. MD&A—Market Risk Profile” and “ We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operation ” for additional information.
We may not be able to maintain adequate sources of funding and liquidity to operate our business.
We may not be able to maintain adequate sources of funding and liquidity to fund our operations, grow our business, pay our outstanding liabilities and meet regulatory expectations. Our ability to borrow from other financial institutions or to engage in funding transactions on favorable terms or at all could be adversely affected by factors outside of our control, including disruptions, uncertainty or volatility in the capital markets. Additionally, increased charge-offs, rising interest rates, increased refinancing activity and other events may cause our securitization transactions to amortize earlier than scheduled or reduce the value of the securities that we hold for liquidity purposes, which could accelerate our need for additional funding from other sources. We could also experience impairments of other financial assets and other negative impacts on our financial position, including possible constraints on liquidity and capital, as well as higher costs of capital.
In addition, our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include increases in funding costs, downturns in the geographic markets in which our loans and operations are concentrated, difficulties in credit markets or unforeseen outflows of cash or collateral, including as a result of unusual effects in the market.27
Capital One Financial Corporation (COF)
Table of ContentsOur ability to fund our business and our liquidity position also depend on our ability to attract or maintain deposits. Many other financial institutions have increased their reliance on deposit funding and, as such, we expect continued competition in the deposit markets. We cannot predict how this competition will affect our costs. If we are required to offer higher interest rates to attract or maintain deposits, our funding costs will be adversely impacted. Although we have historically been able to meet the liquidity needs of customers as necessary, the ability to do so is not assured, especially if a large number of our depositors seek to withdraw their accounts or if our customers seek significant draws on their credit lines, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations and financial condition.Credit Risk
We may experience increases in delinquencies and credit losses, or we may incorrectly estimate expected losses, which could result in inadequate reserves.Like other lenders, we face the risk that our customers will not repay their loans. A customer’s ability and willingness to repay us can be adversely affected by decreases in the income of the borrower or increases in their payment obligations to other lenders, whether as a result of a job loss, higher debt levels or rising cost of servicing debt, inflation outpacing wage growth, or by restricted availability of credit generally. We may fail to quickly identify and reduce our exposure to customers that are likely to default on their payment obligations, whether by closing credit lines or restricting authorizations. Our ability to manage credit risk also is affected by legal or regulatory changes (such as restrictions on collections, bankruptcy laws, minimum payment regulations and re-age guidance), competitors’ actions and consumer behavior, and depends on the effectiveness of our collections staff, techniques and models.Rising credit losses or leading indicators of rising credit losses (such as higher delinquencies, higher rates of nonperforming loans, higher bankruptcy rates, lower collateral values, elevated unemployment rates or changing market terms) may require us to increase our allowance for credit losses, which would decrease our profitability if we are unable to raise revenue or reduce costs to compensate for higher credit losses, whether actual or expected. In particular, we face the following risks in this area:• Missed Payments : Our customers may fail to make required payments on time and may default or become delinquent. Loan charge-offs (including from bankruptcies) are generally preceded by missed payments or other indications of worsening financial conditions for our customers. Historically, customers are more likely to miss payments during an economic downturn, recession, periods of high unemployment, or prolonged periods of slow economic growth. Customers might also be more likely to miss payments if the payment burdens on their existing debt grow due to higher interest rates, or if inflation outpaces wage growth. Additionally, the CFPB has, among other things, issued a final rule amending Regulation Z that, if it goes into effect as currently issued, would significantly lower the safe harbor amount for past due fees that a large credit card issuer, such as the Bank, can charge on consumer credit card accounts, which could result in changes in consumer repayment patterns.
• Incorrect Estimates of Expected Credit Losses : The credit quality of our loan portfolios can have a significant impact on our earnings. We allow for and reserve against credit risks based on our assessment of expected credit losses in our loan portfolios. This process, which is critical to our financial condition and results of operations, requires complex judgments, including forecasts of economic conditions. We may underestimate our expected credit losses and fail to hold an allowance for credit losses sufficient to account for these credit losses. Incorrect assumptions could lead to material underestimations of expected credit losses and an inadequate allowance for credit losses. See “ We face risks resulting from the extensive use of models and data, as well as our evolving use of AI. ”• Inaccurate Underwriting : Our ability to accurately assess the creditworthiness of our customers may diminish, which could result in an increase in our credit losses and a deterioration of our returns. See “ Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk. ”
• Business Mix : We engage in a diverse mix of businesses with a broad range of potential credit exposure. Because we originate a relatively greater proportion of consumer loans in our loan portfolio compared to other large bank peers and originate both prime and subprime credit card accounts and auto loans, we may experience higher delinquencies and a greater number of accounts charging off, as well as greater fluctuations in those metrics, compared to other large bank peers, which could result in increased credit losses, operating costs and regulatory scrutiny. Additionally, a change in this business mix over time to include proportionally more consumer loans or subprime credit card accounts or auto loans could adversely affect the credit quality of our loan portfolios.28Capital One Financial Corporation (COF)
Table of Contents• Increasing Charge-off Recognition/Allowance for Credit Losses : We account for the allowance for credit losses according to accounting and regulatory guidelines and rules, including Financial Accounting Standards Board (“FASB”) standards and the Federal Financial Institutions Examination Council (“FFIEC”) Account Management Guidance. We measure our allowance for credit losses under the CECL standard, which is based on management’s best estimate of expected lifetime credit losses. The impact of measuring our allowance for credit losses on our results will depend on the characteristics of our financial instruments, economic conditions, and our economic and loss forecasts. The application of the CECL standard may require us to increase reserves faster and to a higher level in an economic downturn, resulting in greater adverse impact to our results and our capital ratios than we would have experienced in similar circumstances prior to the adoption of CECL. Due to our business mix and the impact of credit losses on our income statement as compared to many of our large bank peers, we could be disproportionately affected by use of the CECL standard.• Insufficient Asset Values : The collateral we have on secured loans could be insufficient to compensate us for credit losses. When customers default on their secured loans, we attempt to recover collateral where permissible and appropriate. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan, and we may be unsuccessful in recovering the remaining balance from our customers. Decreases in real estate and other asset values adversely affect the collateral value for our commercial lending activities, while the auto business is similarly exposed to collateral risks arising from the auction markets that determine used car prices. Borrowers may be less likely to continue making payments on loans if the value of the property used as collateral for the loan is less than what the borrower owes, even if the borrower is still financially able to make the payments. In that circumstance, the recovery of such property could be insufficient to compensate us for the value of these loans upon a default. For example, high vacancy rates in commercial properties may affect the value of commercial real estate, including by causing the value of properties securing commercial real estate loans to be less than the amounts owed on such loans. In our auto business, business and economic conditions that negatively affect household incomes and savings, housing prices and consumer behavior, as well as technological advances that make older cars obsolete faster, could decrease (i) the demand for new and/or used vehicles and (ii) the value of the collateral underlying our portfolio of auto loans, which could cause the number of consumers who become delinquent or default on their loans to increase.• Geographic and Industry Concentration : Although our consumer lending is geographically diversified, approximately 38.1% of our commercial real estate loan portfolio is concentrated in the Northeast region. The regional economic conditions in the Northeast affect the demand for our commercial products and services as well as the ability of our customers to repay their commercial real estate loans and the value of the collateral securing these loans. An economic downturn or prolonged period of slow economic growth in, or a catastrophic event or natural disaster that disproportionately affects the Northeast region could have a material adverse effect on the performance of our commercial real estate loan portfolio and our results of operations. In addition, our Commercial Banking strategy includes an industry-specific focus. If any of the industries that we focus on experience changes, we may experience increased credit losses and our results of operations could be adversely impacted.Capital and Liquidity Risk
We may not be able to maintain adequate capital or liquidity levels or may become subject to revised capital or liquidity requirements, which could have a negative impact on our financial results and our ability to return capital to our stockholders.Financial institutions are subject to extensive and complex capital and liquidity requirements, which are subject to change. These requirements affect our ability to lend, grow deposit balances, make acquisitions and distribute capital. Failure to maintain adequate capital or liquidity levels, whether due to adverse developments in our business or the economy or to changes in the applicable requirements, could subject us to a variety of restrictions and/or remedial actions imposed by our regulators. These include limitations on the ability to pay dividends or repurchase shares and the issuance of a capital directive to increase capital. Such limitations or capital directive could have a material adverse effect on our business and results of operations. For example, changes to applicable capital, liquidity, or other regulations, such as the changes proposed in the Basel III Finalization Proposal and the LTD Proposal, could result in increased regulatory capital requirements, operating expenses or cost of funding, which could negatively affect our financial results or our ability to distribute capital.
We consider various factors in the management of capital, including the impact of both internal and supervisory stress scenarios on our capital levels as determined by our internal modeling and the Federal Reserve’s estimation of losses in supervisory stress
29Capital One Financial Corporation (COF)
Table of Contentsscenarios that are used to annually set our stress capital buffer requirement. There can be significant differences between our modeling and the Federal Reserve’s projections for a given supervisory stress scenario and between the capital needs suggested by our internal stress scenarios and the supervisory stress scenarios. Therefore, although our estimated capital levels under stress disclosed as part of the stress testing processes may suggest that we have a particular capacity to return capital to stockholders and remain well capitalized under stress, the Federal Reserve’s modeling, our internal modeling of another scenario or other factors related to our capital management process may reflect a lower capacity to return capital to stockholders than that indicated by the projections released in the stress testing processes. This, in turn, could lead to restrictions on our ability to pay dividends and engage in repurchases of our common stock. See “Item 1. Business—Supervision and Regulation” for additional information.
We also consider various factors in the management of liquidity, including maintaining sufficient liquid assets to meet the requirements of several internal and regulatory stress tests. Regulatory liquidity stress testing, regulatory liquidity requirements, and internal stress tests may, therefore, require us to take actions to increase our liquid assets or alter our activities or funding sources, which could negatively affect our financial results or our ability to return capital to our stockholders. See “Item 1. Business—Supervision and Regulation” for additional information.Limitations on our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends and repurchase our common stock.We are a separate and distinct legal entity from our subsidiaries, including, without limitation, the Bank and our broker-dealer subsidiaries. Dividends to us from these direct and indirect subsidiaries have represented a major source of funds for us to pay dividends on our common and preferred stock, repurchase our common stock, make payments on corporate debt securities and meet other obligations. These capital distributions may be limited by law, regulation or supervisory policy. There are various federal law limitations on the extent to which the Bank can finance or otherwise supply funds to us through dividends and loans. These limitations include minimum regulatory capital and capital buffer requirements, federal banking law requirements concerning the payment of dividends out of net profits or surplus, and Sections 23A and 23B of the Federal Reserve Act and Regulation W governing transactions between an insured depository institution and its affiliates, as well as general federal regulatory oversight to prevent unsafe or unsound practices. Our broker-dealer subsidiaries are also subject to laws and regulations, including net capital requirements, that may limit their ability to pay dividends or make other distributions to us. If our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our liquidity may be affected and we may not be able to make dividend payments to our common or preferred stockholders, repurchase our common stock, make payments on outstanding corporate debt securities or meet other obligations, each and any of which could have a material adverse impact on our results of operations, our financial position or the perception of our financial health. The frequency and size of any future dividends to our stockholders and our stock repurchases will depend upon regulatory limitations imposed by our regulators and our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory review and other factors as further described in “Item 1. Business—Supervision and Regulation.”A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.Our credit ratings are based on a number of factors, including financial strength, as well as factors not within our control, including conditions affecting the financial services industry generally, the macroeconomic environment and changes made by rating agencies to their methodologies or ratings criteria. Our ratings could be downgraded at any time and without any notice by any of the rating agencies, which could, among other things, adversely affect our ability to borrow funds, increase our funding cost, increase our cost of capital, limit the number of investors or counterparties willing to do business with or lend to us, adversely limit our ability to access the capital markets and result in additional collateral requirements under certain of our existing agreements, all of which could have a negative impact on our results of operations.Operational Risk
We face risks related to our operational, technological and organizational infrastructure.Our ability to retain and attract customers depends on our ability to develop, operate, and adapt our technology and organizational infrastructure in a rapidly changing environment. In addition, we must accurately process, record and monitor an increasingly large number of complex transactions. Digital technology, cloud-based services, data and software development are deeply embedded into our business model and how we work.
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Table of ContentsSimilar to other large corporations in our industry, we are exposed to operational risk that can manifest itself in many ways, such as errors in execution, inadequate processes, inaccurate models, faulty or disabled technological infrastructure, malicious disruption and fraud by employees or persons outside of our company, whether through attacks on Capital One directly, or on our third-party service providers or customers. In addition, the increasing use of near real-time money movement solutions, among other risks, increases the complexity of preventing, detecting and recovering fraudulent transactions. We are also heavily dependent on the security, capability, integrity and continuous availability of the technology systems and networks that we use to manage our internal financial and other systems, monitor risk and compliance with regulatory requirements, provide services to our customers, develop and offer new products and communicate with stakeholders. Despite our implementation of various internal and external procedures and security measures, our employees, service providers, partners and other third parties with whom we interact may expose us to certain risks as a result of human error. For example, errors in processing wire transfers may result in the inadvertent release of funds in incorrect amounts or to incorrect recipients, and we may be unable to recover such funds.
We also face the risk of adverse customer impacts and business disruption arising from the execution of strategic initiatives and operational plans we may pursue across our operations. For example, when we launch a new product, service or platform for the delivery or distribution of products or services, acquire or invest in a business or make changes to an existing product, service or delivery platform, there is the risk of execution issues related to changes to operations or processes. These issues could be driven by insufficient mitigation of operational risks associated with the change implementation, inadequate training, failure to account for new or changed requirements, or failure to identify or address impacted downstream processes. Furthermore, ineffective change management oversight and governance over the execution of our key projects and initiatives could expose us to operational, strategic and reputational risk and could negatively impact customers or our financial performance. In addition, we may experience increased costs and/or disruptions due to our hybrid work model, which could also affect our ability to operate effectively and maintain our corporate culture.
If we do not maintain the necessary operational, technological and organizational infrastructure to operate our business, including to maintain the resiliency and security of that infrastructure, our business and reputation could be materially adversely affected. We also are subject to disruptions to our systems or networks arising from events that are wholly or partially beyond our control, which may include computer viruses; computer, telecommunications, network, utility, electronic or physical infrastructure outages; bugs, errors, insider threats, design flaws in systems, networks or platforms; availability and quality of vulnerability patches from key vendors, cyber-attacks and other security incidents, natural disasters, other damage to property or physical assets, or events arising from local or larger scale politics, including civil unrest, terrorist acts and military conflict. Any failure to maintain our infrastructure or prevent disruption of our systems, networks and applications could diminish our ability to operate our businesses, service customer accounts and protect customers’ information, or result in potential liability to customers, reputational damage, regulatory intervention and customers’ loss of confidence in our businesses, any of which could result in a material adverse effect.
We also rely on the business infrastructure and systems of third-party service providers (and their supply chains) with which we do business and/or to whom we outsource the operation, maintenance and development of our information technology and communications systems. We have substantially migrated primarily all aspects of our core information technology systems and customer-facing applications to third-party cloud infrastructure platforms, principally AWS. If we fail to architect, administer or oversee these environments in a well-managed, secure and effective manner, or if such platforms become unavailable, are disrupted, fail to scale, do not operate as designed, or do not meet their service level agreements for any reason, we may experience unplanned service disruption or unforeseen costs which could result in material harm to our business and operations. We must successfully develop and maintain information, financial reporting, disclosure, privacy, data protection, data security and other controls adapted to our reliance on outside platforms and providers. Weakness in our third-party service providers’ processes or controls could impact our ability to deliver products or services to our customers and expose us to compliance and operational risks. In addition, AWS, or other service providers (including, without limitation, those who also rely on AWS) have experienced, and may continue to experience system or telecommunication breakdowns or failures, outages, degradation in service, downtime, failure to scale, software bugs, design flaws, cyber-attacks and other security incidents, insider threats, adverse changes to financial condition, bankruptcy, or other adverse conditions, (including conditions which interfere with our access to and use of AWS) that are outside of our control, any of which could have a material adverse effect on our business and reputation. For example, in January 2025, we experienced a multi-day system outage due to a technical issue experienced by FIS, a third-party service provider, which temporarily impacted certain services for some of our customers. Although we were able to reconnect our systems following restoration of the vendor’s capabilities, there can be no assurance that we will not experience additional system outages in the future as a result of technical issues experienced by our third-party vendors. Any such service outage, particularly where the vendor is the single source from which we obtain such services, could significantly
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disrupt our business or negatively impact the relationship we have with customers that rely on such services.. We also face a risk that our third-party service providers might be unable or unwilling to continue to provide services to meet our current or future needs in an efficient, cost-effective, or favorable manner or may terminate or seek to terminate their contractual relationship with us. Any transition to alternative third-party service providers or internal solutions may be difficult to implement, may cause us to incur significant time and expense and may disrupt or degrade our ability to deliver our products and services. Thus, the substantial amount of our infrastructure that we outsource to AWS or to other third-party service providers may increase our risk exposure.
Any disruptions, failures or inaccuracies of our operational processes, technology systems, networks and models, including those associated with improvements or modifications to such technology systems, networks and models, or failure to identify or effectively respond to operational risks in a timely manner and continue to deliver our services through an operational disruption, could cause us to be unable to market and manage our products and services, manage our risk, meet our regulatory obligations or report our financial results in a timely and accurate manner, all of which could have a negative impact on our results of operations. In addition, our ongoing investments in infrastructure, which are necessary to maintain a competitive business, integrate acquisitions and establish scalable operations, may increase our expenses. As our business develops, changes or expands, additional expenses can arise as a result of a reevaluation of business strategies or risks, management of outsourced services, asset purchases or other acquisitions, structural reorganization, compliance with new laws or regulations, the integration of newly acquired businesses, or the prevention or occurrence of cyber-attacks and other security incidents. If we are unable to successfully manage our expenses, our financial results will be negatively affected. Changes to our business, including those resulting from our strategic imperatives, also require robust governance to ensure that our objectives are executed as intended without adversely impacting our customers, associates, operations or financial performance.A cyber-attack or other security incident on us or third parties (including their supply chains) with which we conduct business, including an incident that results in the theft, loss, manipulation or misuse of information (including personal information), or the disabling of systems and access to information critical to business operations, may result in increased costs, reductions in revenue, reputational damage, legal exposure and business disruptions.Our ability to provide our products and services and communicate with our customers, depends upon the management and safeguarding of information systems and infrastructure, networks, software, data, technology, methodologies and business secrets, including those of our service providers. Our products and services involve the collection, authentication, management, usage, storage, transmission and destruction of sensitive and confidential information, including personal information, regarding our customers and their accounts, our employees, our partners and other third parties with which we do business. We also have arrangements in place with third-party business partners through which we share and receive information about their customers who are or may become our customers. The financial services industry, including Capital One, is particularly at risk because of the increased use of and reliance on digital banking products and other digital services, including mobile banking products, such as mobile payments, and other internet- and cloud-based products and applications, and the development of additional remote connectivity solutions, which increase cybersecurity risks and exposure. In addition, global events and geopolitical instability (including, without limitation, the conflict in the Middle East, the war between Ukraine and Russia and the related sanctions imposed by the U.S. and other countries, and increased geopolitical tensions between the U.S. and China) may lead to increased nation state targeting of financial institutions in the U.S. and abroad.
Technologies, systems, networks and other devices of Capital One, as well as those of our employees, service providers, partners and other third parties with whom we interact, have been and may continue to be the subject of cyber-attacks and other security incidents, including computer viruses, hacking, malware, ransomware, denial of service attacks, supply chain attacks, exploitation of vulnerabilities, credential stuffing, account takeovers, insider threats, business email compromise scams or the use of phishing, vishing (through voice messages), smishing (through SMS text), “deep fakes”, or other forms of social engineering. Such cyber-attacks and other security incidents are designed to lead to various harmful outcomes, such as unauthorized transactions in Capital One accounts, unauthorized or unintended access to or release, gathering, monitoring, disclosure, loss, destruction, corruption, disablement, encryption, misuse, modification or other processing of confidential or sensitive information (including personal information), intellectual property, software, methodologies or business secrets, disruption, sabotage or degradation of service, systems or networks, an attempt to extort Capital One, its third-party service providers or its business partners or other damage. Cyber-attacks and other security incidents that occur in the supply chain of third parties with which we interact could also negatively impact Capital One.
These threats may derive from, among other things, error, fraud or malice on the part of our employees, insiders, or third parties or may result from accidental technological failure or design flaws. Any of these parties may attempt to fraudulently induce employees, service providers, customers, partners or other third-party users of our systems or networks to disclose confidential
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Table of Contentsor sensitive information (including personal information) in order to gain access to our systems, networks or data or that of our customers, partners, or third parties with whom we interact, or to unlawfully obtain monetary benefit through misdirected or otherwise improper payment. For instance, any party that obtains our confidential or sensitive information (including personal information) through a cyber-attack or other security incident may use this information for ransom, to be paid by us or a third party, as part of a fraudulent activity that is part of a broader criminal activity, or for other illicit purposes. Additionally, the failure of our employees, third-party service providers or business partners, or their respective supply chains, to exercise sound judgment and vigilance when targeted with social engineering or other cyber-attacks may increase our vulnerability.For example, on July 29, 2019, we announced that on March 22 and 23, 2019 an outside individual gained unauthorized access to our systems (the “2019 Cybersecurity Incident”). This individual obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers. While the 2019 Cybersecurity Incident has been remediated, it resulted in fines, litigation, consent orders, settlements, government investigations and other regulatory enforcement inquiries. Cyber and information security risks for large financial institutions like us continue to increase due to the proliferation of new technologies, the industry-wide shift to reliance upon the internet to conduct financial transactions, the increased sophistication and activities of malicious actors, organized crime, perpetrators of fraud, hackers, terrorists, activists, extremist parties, formal and informal instrumentalities of foreign governments, state-sponsored or nation-state actors and other external parties and the growing use of AI by threat actors.In addition, our customers access our products and services using personal devices that are necessarily external to our security control systems. There has also been a significant proliferation of consumer information available on the internet resulting from breaches of third-party entities, including personal information, log-in credentials and authentication data. These third-party breach events could create a threat for our customers if their Capital One log-in credentials are the same as or similar to the credentials that have been compromised on other internet sites. This threat could include the risk of unauthorized account access, data loss and fraud. The use of AI, “bots” or other automation software can increase the velocity and efficacy of these types of attacks. As our employees are operating under our hybrid work model, our remote interaction with employees, service providers, partners and other third parties on systems, networks and environments over which we have less control (such as through employees’ personal devices) increases our cybersecurity risk exposure. We will likely face an increasing number of attempted cyber-attacks as we expand our mobile and other internet-based products and services, expand our usage of mobile, cloud and other internet-based technologies and provide more of such products and these services to a greater number of retail banking customers.
The methods and techniques employed by malicious actors continue to develop and evolve rapidly, including from emerging technologies, such as advanced forms of AI and quantum computing, are increasingly sophisticated and often are not fully recognized or understood until after they have occurred, and some techniques could occur and enable persistent access for an extended period of time before being detected and remediated, if at all. We and our service providers and other third parties with which we interact may be unable to anticipate or identify certain attack methods or techniques in order to implement effective preventative or detective measures or mitigate or remediate the damages caused in a timely manner. Similarly, any cyber-attack or other security incident, information or security breach or technology failure that significantly exposes, degrades, destroys or compromises our information systems or networks could adversely impact third parties and the critical infrastructure of the financial services industry, thereby creating additional risk for us.We may also be unable to hire, develop and retain talent that keeps pace with the rapidly changing cyber threat landscape, and which are capable of preventing, detecting, mitigating or remediating these risks. Although we seek to maintain a robust suite of authentication and layered information security controls, any one or combination of these controls could fail to prevent, detect, mitigate, remediate or recover from these risks in a timely manner.An actual, suspected, threatened or alleged disruption or breach, including as a result of a cyber-attack such as the 2019 Cybersecurity Incident, or media (including social media) reports of alleged or perceived security vulnerabilities or incidents at Capital One or at our service providers, could result in significant legal and financial exposure, regulatory intervention, litigation, enforcement actions, remediation costs, card reissuance, supervisory liability, damage to our reputation or loss of confidence in the security of our systems, products and services that could adversely affect our business. Moreover, new regulations may require us to publicly disclose certain information about certain cybersecurity incidents before they have been resolved or fully investigated, and any delays in receiving timely information from impacted service providers and business partners can affect our ability to fully meet applicable disclosure requirements for a given incident. There can be no assurance that unauthorized access or cyber incidents similar to the 2019 Cybersecurity Incident will not occur or that we will not suffer material losses in the future. If future attacks are successful or if customers are unable to access their accounts online for other
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Table of Contentsreasons, it could adversely impact our ability to service customer accounts or loans, complete financial transactions for our customers or otherwise operate any of our businesses or services. In addition, a breach or attack affecting one of our service providers or other third parties with which we interact could harm our business even if we do not control the service that is attacked.
Further, our ability to monitor our service providers’ and other business partners’ cybersecurity practices is inherently limited. Although the agreements that we have in place with our service providers (and other business partners) generally include requirements relating to privacy, data protection and data security, we cannot guarantee that such agreements will prevent a cyber incident impacting our systems or information or enable us to obtain adequate or any reimbursement from our service providers or other business partners in the event we should suffer any such incidents. However, due to applicable laws and regulations or contractual obligations, we may be held responsible for cyber incidents attributed to our service providers and other business partners as they relate to the information we share with them.
In addition, we continue to incur increased costs with respect to preventing, detecting, investigating, mitigating, remediating, and recovering from cybersecurity risks, as well as any related attempted fraud. In order to address ongoing and future risks, we must expend significant resources to support protective security measures, investigate and remediate any vulnerabilities of our information systems and infrastructure and invest in new technology designed to mitigate security risks. Further, high profile cyber incidents at Capital One or other large financial institutions could undermine our competitive advantage and divert management attention and resources, lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our security measures or the global financial system in general, which could result in reduced use of our financial products. We have insurance against some cyber risks and attacks; nonetheless, our insurance coverage may not be sufficient to offset the impact of a material loss event (including if our insurer denies coverage as to any particular claim in the future), and such insurance may increase in cost or cease to be available on commercially reasonable terms, or at all, in the future. In addition, in the case of any cyber-attack or other security incident, information or security breach or technology failure arising from third-party systems impacting us, any third-party indemnification may not be applicable or sufficient to address the impact of such incidents.We face risks resulting from the extensive use of models and data, as well as from our evolving use of AI.We rely on quantitative models and in some cases the use of AI, as well as our ability to manage and aggregate data in an accurate and timely manner, to assess and manage our various risk exposures, create estimates and forecasts, and manage compliance with regulatory capital requirements. We continue to invest in building new capabilities that employ new AI technologies such as generative AI, and we expect our use of these technologies to increase over time. However, there are significant risks involved in utilizing models and AI and no assurance can be provided that our use will enhance our business or produce only intended or beneficial results. For example, generative AI has been known to produce false or “hallucinatory” inferences or output, and certain generative AI uses machine learning and predictive analytics, which can create inaccurate, incomplete or misleading output, unexpected results, errors or inadequacies, any of which may not be easily detectable. AI may subject us to new or heightened legal, regulatory, ethical, or other challenges; and negative public opinion of AI could impair the acceptance of AI solutions. Accordingly, if the models or AI solutions that we create or use, or if the content, analyses or recommendations that models or AI solutions assist in producing in our products and services, are, or are perceived to be deficient, inaccurate, biased, unethical or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results. We also may incur liability through the violation of applicable laws and regulations, third-party intellectual property, privacy or other rights, or contracts to which we are a party.
We may use models and AI in processes such as determining the pricing of various products, identifying potentially fraudulent transactions, grading loans and extending credit, measuring interest rate and other market risks, predicting deposit levels or loan losses, assessing capital adequacy, calculating managerial and regulatory capital levels, estimating the value of financial instruments and balance sheet items, and other operational functions. Development and implementation of some of these models, such as the models for credit loss accounting under CECL, require us to make difficult, subjective and complex judgments. Our risk reporting and management, including business decisions based on information incorporating models and the use of AI, depend on the effectiveness of our models and AI and our policies, programs, processes and practices governing how data, models and AI, as applicable, are acquired, validated, stored, protected, processed and analyzed. Any issues with the quality or effectiveness of our data aggregation and validation procedures, as well as the quality and integrity of data inputs, formulas or algorithms, could result in inaccurate forecasts, ineffective risk management practices or inaccurate risk reporting. In addition, models and AI based on historical data sets might not be accurate predictors of future outcomes and their ability to appropriately predict future outcomes may degrade over time due to limited historical patterns, extreme or unanticipated market
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Table of Contentsmovements or customer behavior and liquidity, especially during severe market downturns or stress events (e.g., geopolitical or pandemic events).
While we continuously update our policies, programs, processes and practices, many of our data management, modeling, AI, aggregation and implementation processes are manual and may be subject to human error, data limitations, process delays or system failure. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risk, to produce accurate financial, regulatory and operational reporting as well as to manage changing business needs. If our Framework is ineffective, we could suffer unexpected losses which could materially adversely affect our results of operation or financial condition. Also, any information we provide to the public or to our regulators based on incorrectly designed or implemented models or AI could be inaccurate or misleading. Some of the decisions that our regulators make could be affected adversely due to the perception that the quality of the data, models and AI used to generate the relevant information is insufficient. In addition, regulation of AI is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful emerging technologies. The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, privacy, data protection and data security, consumer protection, competition, and equal opportunity laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations. AI is the subject of ongoing review by various U.S. governmental and regulatory agencies, and various U.S. states and other foreign jurisdictions are applying, or are considering applying, their platform moderation, privacy, data protection and data security laws and regulations to AI or are considering general legal frameworks for AI. We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions. Furthermore, because AI technology itself is highly complex and rapidly developing, it is not possible to predict all of the legal, operational, competitive or technological risks that may arise relating to the use of AI.
Fraudulent activity associated with our products could cause our fraud losses to increase, the use of our products to decrease and our brands to suffer reputational damage, all of which could have a material adverse effect on our business.
We are subject to the risk of fraudulent activity associated with merchants, customers and other third parties handling customer information. The risk of fraud continues to be a persistent inherent risk for the financial services industry. Credit and debit card fraud, identity theft and electronic-transaction related crimes are prevalent and perpetrators are growing ever more sophisticated. Emerging generative AI capabilities, such as synthetic voice and conversation generation, introduced an increase in fraud risks, especially in the form of identity fraud. While we have policies and procedures designed to address such risk, there can be no assurance that losses will not occur. Our resources, customer authentication methods and fraud prevention tools may be insufficient to accurately predict, prevent or detect fraud. Consumer activists and regulators have sought to expand financial institutions’ responsibility to hold customers harmless for fraudulent transactions that they authorized on their accounts.
Our risk of fraud continues to increase as third parties that handle confidential consumer information suffer security breaches and we expand our digital banking business and introduce new products and features. Our financial condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if fraudulent activity were to significantly increase. Furthermore, high-profile fraudulent activity could negatively impact our brand and reputation. In addition, significant increases in fraudulent activity could lead to regulatory intervention or other actions (such as mandatory card reissuance) and reputational and financial damage to our brands, which could negatively impact the use of our deposit accounts and cards and which could have a material adverse effect on our business.Legal and Regulatory Risk
Compliance with new and existing domestic and foreign laws, regulations and regulatory expectations is costly and complex, and any significant changes may adversely affect our business.A wide array of laws and regulations, including banking, tax and consumer lending laws and regulations, apply to every aspect of our business and these laws can be uncertain and evolving. We and our subsidiaries are also subject to supervision and examination by multiple regulators both in the U.S. and abroad, and the manner in which our regulators interpret applicable laws and regulations may affect how we comply with them.
Failure to comply with these laws and regulations and effectively navigate this complex regulatory landscape, even if the failure is inadvertent, results from human error or reflects a difference in interpretation or conflicting legal requirements, could subject
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Table of Contentsus to restrictions on our business activities, fines, criminal sanctions and other penalties, and/or damage to our reputation with regulators, our customers or the public. Hiring, training and retaining qualified compliance and legal personnel, and establishing and maintaining risk management and compliance-related systems, infrastructure and processes, is difficult and may lead to increased expenses. These efforts and the associated costs could limit our ability to invest in other business opportunities. In addition, actions, behaviors or practices by us, our employees or representatives that are illegal, unethical or contrary to our core values could harm us, our stockholders or customers or damage the integrity of the financial markets and are subject to regulatory scrutiny across jurisdictions. Violations of law by other financial institutions may also result in increased regulatory scrutiny of our business.
Applicable rules and regulations may affect us disproportionately compared to our competitors or in an unforeseen manner. For example, we have a large number of customer accounts in our credit card and auto lending businesses and we have made the strategic choice to originate and service subprime credit card and auto loans, which typically have higher delinquencies and charge-offs than prime customer accounts. As a result, we have significant involvement with credit bureau reporting and the collection and recovery of delinquent and charged-off debt, primarily through customer communications, the filing of litigation against customers in default, the periodic sale of charged-off debt and vehicle repossession. These and other consumer lending activities are subject to customer complaints and enhanced legal and regulatory scrutiny from regulators, courts and legislators. Any future changes to or legal liabilities resulting from our business practices in these areas, including our debt collection practices and the fees we charge, whether mandated by regulators, courts, legislators or otherwise, could have a material adverse impact on our financial condition.
The legislative, regulatory and supervisory environment is beyond our control, may change rapidly and unpredictably, and may negatively influence our revenue, costs, earnings, growth, liquidity and capital levels. For example, the CFPB has announced several initiatives related to the amounts and types of fees financial institutions may charge, including a final rule amending Regulation Z that, if it goes into effect as currently issued, would significantly lower the safe harbor amount for past due fees that a large credit card issuer, such as the Bank, can charge on consumer credit card accounts. Such changes could affect our ability or willingness to provide certain products or services, necessitate changes to our business practices, or reduce our revenues. There may also be future rulemaking in emerging regulatory areas, such as climate-related risks and new technologies. Adoption of new technologies, such as distributed ledger technologies, tokenization, cloud computing, AI and machine learning technologies, can present unforeseen challenges in applying and relying on existing compliance systems. In addition, some laws and regulations may be subject to litigation or other challenges that delay or modify their implementation and impact on us. Furthermore, political and policy goals of elected officials may change over time, which could impact the rulemaking, supervision, examination and enforcement priorities of the Federal Banking Agencies.
Certain laws and regulations, and any interpretations and applications with respect thereto, are generally intended to protect consumers, borrowers, depositors, the DIF, the U.S. banking and financial system, and financial markets as a whole, but not stockholders. Our success depends on our ability to maintain compliance with both existing and new laws and regulations. For a description of the material laws and regulations, including those related to the consumer lending business, to which we are subject, see “Item 1. Business—Supervision and Regulation.”
Our required compliance with applicable laws and regulations related to privacy, data protection and data security, in addition to compliance with our own privacy policies and contractual obligations to third parties, may increase our costs, reduce our revenue, increase our legal exposure and limit our ability to pursue business opportunities.
We are subject to a variety of continuously evolving and developing laws and regulations in the United States at the federal, state and local level regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information. For further discussion of applicable privacy, data protection and data security laws and regulations, see “Item 1. Business—Supervision and Regulation” under the headings “Privacy, Data Protection and Data Security” and “Regulation by Authorities Outside the United States.” These laws and regulations, and similar laws and regulations in other jurisdictions, impose strict requirements regarding the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information, which may have adverse consequences, including significant compliance costs and severe monetary penalties for non-compliance. Significant uncertainty exists as privacy, data protection, and data security laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements.
Further, we make public statements about our use, collection, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our
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Table of Contentsprivacy policies and other statements that provide promises and assurances about privacy, data protection and data security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. We have been subject to these types of claims in the past, and there can be no assurance that we will not be subject to these types of claims in the future. Additional risks could arise in connection with any failure or perceived failure by us, our service providers or other third parties with which we do business to provide adequate disclosure or transparency to individuals, including our customers, about the personal information collected from them and its use, to receive, document or honor the privacy preferences expressed by individuals, to protect personal information from unauthorized disclosure, or to maintain proper training on privacy practices for all employees or third parties who have access to personal information in our possession or control.
Our efforts to comply with GLBA, FCRA, CCPA, PIPEDA and provincial privacy laws, EU GDPR, U.K. GDPR and other privacy, data protection and data security laws and regulations, as well as our posted privacy policies, and related contractual obligations to third parties, entail substantial expenses, may divert resources from other initiatives and projects, and could limit the services we are able to offer. Furthermore, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy, data protection and data security violations continue to increase. The enactment of more restrictive laws or regulations, or future enforcement actions, litigation or investigations, could impact us through increased costs or restrictions on our business, and any noncompliance or perceived noncompliance could result in monetary or other penalties, harm to our reputation, distraction to our management and technical personnel and significant legal liability.Our businesses are subject to the risk of increased litigation, government investigations and regulatory enforcement.Our businesses are subject to increased litigation, government investigations and other regulatory enforcement risks as a result of a number of factors and from various sources, including the highly regulated nature of the financial services industry, the focus of state and federal prosecutors on banks and the financial services industry and the structure of the credit card industry.Given the inherent uncertainties involved in litigation, government investigations and regulatory enforcement decisions, and the very large or indeterminate damages sought in some matters asserted against us, there can be significant uncertainty as to the ultimate liability we may incur from these kinds of matters. The finding, or even the assertion, of substantial legal liability against us could have a material adverse effect on our business and financial condition and could cause significant reputational harm to us, which could seriously harm our business. For example, the 2019 Cybersecurity Incident has resulted in litigation, consent orders, settlements, government investigations and other regulatory enforcement inquiries.
In addition, financial institutions, such as ourselves, face significant regulatory scrutiny, which can lead to public enforcement actions or nonpublic supervisory actions. We and our subsidiaries are subject to comprehensive regulation and periodic examination by, among other regulatory bodies, the Federal Banking Agencies, SEC, CFTC and CFPB. We have been subject to enforcement actions by many of these and other regulators and may continue to be involved in such actions, including governmental inquiries, investigations and enforcement proceedings, including by the OCC, CFPB, Department of Justice, FinCEN and state Attorneys General. For example, on January 14, 2025, the CFPB brought an action in the United States District Court for the Eastern District of Virginia making claims similar to the ongoing previously disclosed savings account litigation.
Over the last several years, federal and state regulators have focused on risk management, compliance with anti-money laundering (“AML”) and sanctions laws, privacy, data protection and data security, use of service providers, fair lending, unfair or deceptive practices, and other consumer protection issues and innovative activities, such as those that utilize AI and other new technology. Regulators have indicated the potential for escalating consequences for banks that do not timely resolve open issues or have repeat issues. Regulatory scrutiny is expected to continue in these areas, including as a result of implementation of the AML Act of 2020.
We expect that regulators and governmental enforcement bodies will continue taking public enforcement actions against financial institutions in addition to addressing supervisory concerns through nonpublic supervisory actions or findings, which could involve restrictions on our activities, or our ability to make acquisitions or otherwise expand our business, among other limitations that could adversely affect our business. In addition, a violation of law or regulation by another financial institution is likely to give rise to supervisory review or an investigation by regulators and other governmental agencies of the same or similar practices by us. Furthermore, a single event may give rise to numerous and overlapping investigations and proceedings. These and other initiatives from governmental authorities and officials may subject us to further customer remuneration, judgments, settlements, fines or penalties, or cause us to restructure our operations and activities or to cease offering certain products or services, all of which could harm our reputation or lead to higher operational costs. Litigation, government
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Table of Contentsinvestigations and other regulatory actions could generally subject us to significant fines, increased expenses, restrictions on our activities and damage to our reputation and our brand, and could adversely affect our business, financial condition and results of operations. For additional information regarding legal and regulatory proceedings to which we are subject, see “Part II—Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”Other Business Risks
We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations.We operate in a highly competitive environment across all of our lines of business, whether in making loans, attracting deposits or in the global payments industry, and we expect competitive conditions to continue to intensify with respect to most of our products particularly in our credit card and consumer banking businesses. We compete on the basis of the rates we pay on deposits and the rates and other terms we charge on the loans we originate or purchase, as well as the quality and range of our customer service, products, innovation and experience. This competitive environment is primarily a result of changes in technology, product delivery systems and regulation, as well as the emergence of new or significantly larger financial services providers, all of which may affect our customers’ expectations and demands. In addition to offering competitive products and services, we invest in and conduct marketing campaigns to attract and inform customers. If our marketing campaigns are unsuccessful, it may adversely impact our ability to attract new customers and grow market share.
Some of our competitors, including new and emerging competitors in the digital and mobile payments space and other financial technology providers, are not subject to the same regulatory requirements or scrutiny to which we are subject, which also could place us at a competitive disadvantage, in particular in the development of new technology platforms or the ability to rapidly innovate. We compete with many forms of payments offered by both bank and non-bank providers, including a variety of new and evolving alternative payment mechanisms, systems and products, such as aggregators and web-based and wireless payment platforms or technologies, digital or cryptocurrencies, prepaid systems and payment services targeting users of social networks, communications platforms and online gaming. If we are unable to continue to keep pace with innovation, do not effectively market our products and services or are prohibited from or unwilling to enter emerging areas of competition, our business and results of operations could be adversely affected. Also, our competitors or other third parties may incorporate AI into their products or services more quickly or more successfully than we do, which could impair our ability to compete effectively. In addition, government actions or initiatives may also provide competitors with increased opportunities to derive competitive advantages and may create new competitors. For example, the CFPB has released a final rule that will require certain financial institutions, including the Company, to share certain financial information with third parties upon a customer’s request, which could enable those third parties to offer competing financial services to consumers.Some of our competitors are substantially larger than we are, which may give those competitors advantages, including a more diversified product and customer base, the ability to reach more customers and potential customers, operational efficiencies, broad-based local distribution capabilities, lower-cost funding and larger existing branch networks. Many of our competitors are also focusing on cross-selling their products and developing new products or technologies, which could affect our ability to maintain or grow existing customer relationships or require us to offer lower interest rates or fees on our lending products or higher interest rates on deposits. Competition for loans could result in origination of fewer loans, earning less on our loans or an increase in loans that perform below expectations.We operate as an online direct bank in the United States. While direct banking provides a significant opportunity to attract new customers that value greater and more flexible access to banking services at reduced costs, we face strong and increasing competition in the direct banking market. Aggressive pricing throughout the industry may adversely affect the retention of existing balances and the cost-efficient acquisition of new deposit funds and may affect our growth and profitability. Customers could also close their online accounts or reduce balances or deposits in favor of products and services offered by competitors for other reasons. These shifts, which could be rapid, could result from general dissatisfaction with our products or services, including concerns over pricing, online security or our reputation. The potential consequences of this competitive environment are exacerbated by the flexibility of direct banking and the financial and technological sophistication of our online customer base.
In our credit card business, competition for rewards customers may result in higher rewards expenses, or we may fail to attract new customers or retain existing rewards customers due to increasing competition for these consumers. As of December 31, 2024, we have a number of large partnerships in our credit card loan portfolio. The market for key business partners, especially in the credit card business, is very competitive, and we may not be able to grow or maintain these partner relationships or assure
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Table of Contentsthat these relationships will be profitable or valued by our customers. Additionally, partners themselves may face changes in their business, including market factors and ownership changes, that could impact the partnership or they may make changes to the products and services they offer, which may lower the value of our products, such as the cobranded cards we issue to our customers. We face the risk that we could lose partner relationships, even after we have invested significant resources into acquiring and developing the relationships. The loss of any key business partner could have a negative impact on our results of operations, including lower returns, excess operating expense and excess funding capacity.
We depend on our partners to effectively promote our co-brand and private label credit card products and integrate the use of our credit cards into their retail operations. The failure by our partners to effectively promote and support our products as well as changes they may make in their business models could adversely affect card usage and our ability to achieve the growth and profitability objectives of our partnerships. In addition, if our partners do not adhere to the terms of our program agreements and standards, or otherwise diminish the value of our brand, we may suffer reputational damage and customers may be less likely to use our products.
Some of our competitors have developed, or may develop, substantially greater financial and other resources than we have, may offer richer value propositions or a wider range of programs and services than we offer, or may use more effective advertising, marketing or cross-selling strategies to acquire and retain more customers, capture a greater share of spending and borrowings, attain and develop more attractive co-brand card programs and maintain greater merchant acceptance than we have. We may not be able to compete effectively against these threats or respond or adapt to changes in consumer spending habits as effectively as our competitors.In such a competitive environment, we may lose entire accounts or may lose account balances to competing firms, or we may find it more costly to maintain our existing customer base. Customer attrition from any or all of our lending products, together with any lowering of interest rates or fees that we might implement to retain customers, could reduce our revenues and therefore our earnings. Similarly, unexpected customer attrition from our deposit products, in addition to an increase in rates or services that we may offer to retain deposits, may increase our expenses and therefore reduce our earnings.Our business, financial condition and results of operations may be adversely affected by legislation, regulation and merchants’ efforts to reduce the interchange fees charged by credit and debit card networks to facilitate card transactions.
As an issuer of credit and debit cards, we earn interchange fees, which are paid by merchants, when customers use our cards. Interchange fees are the amounts established by credit and debit card networks for the purpose of compensating debit and credit card issuers for their role in facilitating card transactions and are a meaningful source of revenue for our credit and debit card businesses. Interchange fees are a revenue source that, for example, covers the issuer’s costs associated with credit and debit card payments, fund rewards programs, help fund anti-fraud measures, management and dispute costs and fund competition and innovation. Interchange fees continue to be the subject of significant and intense global legislative, regulatory and legal focus, and the resulting legislation, regulation and decisions may have a material adverse impact on our overall business, financial condition and results of operations.
Legislative and regulatory bodies in a number of countries have sought, or are currently seeking, to reduce interchange fees through legislation, competition-related regulatory proceedings, voluntary agreements, central bank regulation and/or litigation. In the United States, interchange reimbursement rates for credit card transactions are set by credit card networks such as MasterCard and Visa. In the United States, the Federal Reserve’s Regulation II (Debit Card Interchange Fees and Routing) places limits on the interchange fees that issuers may charge, and requires additional routing requirements for, debit cards issued on networks operated by third parties. On October 25, 2023, the Federal Reserve released a notice of proposed rulemaking to revise Regulation II to further reduce the cap on interchange fees that debit card issuers covered by Regulation II can receive for covered debit card transactions. For more information on these rules, please see “Item 1. Business—Supervision and Regulation.” At the state level, Illinois passed a law prohibiting interchange fees on state taxes and gratuities, which would go into effect July 2025, though it is being challenged in the courts.
Lowering interchange fees also remains an area of international governmental attention by certain parties. In some jurisdictions, such as Canada and certain countries in Europe, including the U.K., interchange fees and related practices are subject to regulatory activity, including in some cases, imposing caps on permissible interchange fees. Our international card businesses have been impacted by these restrictions. For example, in the U.K., interchange fees are capped for both credit and debit card transactions. In addition, in Canada, Visa and MasterCard payment networks have entered into voluntary agreements with the Department of Finance Canada to maintain an agreed upon average interchange rate.
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Table of ContentsIn addition to this legislative and regulatory activity, merchants are also seeking avenues to reduce interchange fees. Merchants and their trade groups have filed numerous lawsuits against payment card networks and banks that issue cards on those networks, claiming that their practices toward merchants, including interchange fees, violate federal antitrust laws. In 2005, a number of entities filed antitrust lawsuits against MasterCard and Visa and several member banks, including our subsidiaries and us, alleging among other things, that the defendants conspired to fix the level of interchange fees. For additional information about the lawsuits, see “Part II—Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others” for further details.
Some major retailers or industry sectors could independently negotiate lower interchange fees with MasterCard and Visa, which could, in turn, result in lower interchange fees for us when our cardholders undertake purchase transactions with these retailers. Merchants continue to lobby Congress aggressively for legislation that would require additional routing requirements for credit cards that are issued on four-party networks, like Visa or MasterCard, which could create a downward pressure on interchange fees should their efforts be successful. Retailers may continue to bring legal proceedings against us or other credit card and debit card issuers and networks in the future.
Beyond pursuing legislation, regulation and litigation, merchants may also promote forms of payment with lower fees or seek to impose surcharges or discounts at the point of sale for use of credit or debit cards. New payment systems, particularly mobile-based payment technologies, could also gain widespread adoption and lead to issuer transaction fees or the displacement of credit or debit cards as a payment method.
The heightened focus by legislative and regulatory bodies on the fees charged by credit and debit card networks, and the ability of certain merchants to successfully pursue litigation, negotiate discounts to interchange fees with payment networks or develop alternative payment systems could result in a loss of income from interchange fees. Any resulting loss in income to us could have a material adverse effect on our business, financial condition and results of operations.
If we are not able to invest successfully in and introduce digital and other technological developments across all our businesses, our financial performance may suffer.
Our industry is subject to rapid and significant technological changes, including due to the increasing development and use of AI, and our ability to meet our customers’ needs and expectations is key to our ability to grow revenue and earnings. We expect digital technologies to continue to have a significant impact on banking over time. Consumers expect robust digital experiences from their financial services providers. The ability for customers to access their accounts and conduct financial transactions using digital technology, including mobile applications, is an important aspect of the financial services industry and financial institutions are rapidly introducing new digital and other technology-driven products and services that aim to offer a better customer experience and to reduce costs. We continue to invest in digital technology designed to attract new customers, facilitate the ability of existing customers to conduct financial transactions and enhance the customer experience related to our products and services.
Our continued success depends, in part, upon our ability to assess and address the needs of our customers by using digital technology to provide products and services that meet their expectations. The development and launch of new digital products and services depends in large part on our ability to invest in and build the technology platforms that can enable them, in a cost effective and timely manner. We expect that new technologies in the payments industry will continue to emerge, and these new technologies may be superior to our existing technology. See “ We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operation ” and “ We face risks related to our operational, technological and organizational infrastructure. ”
Some of our competitors are substantially larger than we are, which may allow those competitors to invest more money into their technology infrastructure and digital innovation than we do. In addition, smaller competitors may experience lower cost structures and different regulatory requirements and scrutiny than we do, which may allow them to innovate more rapidly than we can. See “ We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operation. ” Further, our success depends on our ability to attract and retain strong digital and technology leaders, engineers and other specialized personnel. The competition is intense and the compensation costs continue to increase for such talent. If we are unable to attract and retain digital and technology talent, our ability to offer digital products and services and build the necessary technology infrastructure could be negatively affected, which could negatively impact our business and financial results. A failure to maintain or enhance our competitive position with respect to digital products and services, whether because we fail to anticipate customer expectations or because our technological developments fail to perform as desired or are not implemented in a timely or successful manner, could negatively impact our business and financial results.
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Table of ContentsWe may fail to realize the anticipated benefits of our mergers, acquisitions and strategic partnerships.
We engage in merger and acquisition activity and enter into strategic partnerships from time to time. We continue to evaluate and anticipate engaging in, among other merger and acquisition activity, additional strategic partnerships, selected acquisitions of financial institutions, and acquisitions or divestitures of other businesses or assets, including credit card and other loan portfolios. We may not be able to identify and secure future acquisition targets or dispositions on terms and conditions that are acceptable to us, or successfully complete and integrate the businesses within the anticipated time frame and achieve the anticipated benefits of proposed mergers, acquisitions, dispositions and strategic partnerships, which could impair our growth.Any merger, acquisition, disposition or strategic partnership we undertake entails certain risks, which may materially and adversely affect our results of operations. If we experience greater than anticipated costs to integrate acquired businesses into our existing operations, or are not able to achieve the anticipated benefits of any merger, acquisition or strategic partnership, including cost savings and other synergies, our business could be negatively affected. In addition, it is possible that the ongoing integration processes could result in the loss of key employees, errors or delays in systems implementation, exposure to cybersecurity risks associated with acquired businesses, exposure to additional regulatory oversight, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with partners, clients, customers, depositors and employees or to achieve the anticipated benefits of any merger, acquisition or strategic partnership. Integration efforts also may divert management attention and resources. These integration matters may have an adverse effect on us during any transition period. Moreover, it is possible that we may not realize the anticipated benefits of a given merger, acquisition or strategic partnership (either strategically or financially), even after spending substantial time and money on such a transaction, and we may ultimately decide to divest our interest or otherwise terminate the transaction.In addition, we may face the following risks in connection with any merger, acquisition or strategic partnership:• New Businesses and Geographic or Other Markets: Our merger, acquisition or strategic partnership activity may involve our entry into new businesses or new geographic areas or markets in the U.S. or internationally, that present risks resulting from our relative inexperience in these new businesses, localities or markets. These new businesses, localities or markets may change the overall character of our consolidated portfolio of businesses and alter our exposure to economic and other external factors. We also face the risk that we will not be successful in these new businesses, localities or markets.• Identification and Assessment of Merger and Acquisition Targets and Deployment of Acquired Assets: We may not be able to identify, acquire or partner with suitable targets. Further, our ability to achieve the anticipated benefits of any merger, acquisition or strategic partnership will depend on our ability to assess the asset quality, risks and value of the particular assets or institutions we partner with, merge with or acquire. We may be unable to profitably deploy any assets we acquire.
• Accuracy of Assumptions: In connection with any merger, acquisition or strategic partnership, we may make certain assumptions relating to the proposed merger, acquisition or strategic partnership that may be, or may prove to be, inaccurate, including as a result of the failure to anticipate the costs, timeline or ability to realize the expected benefits of any merger, acquisition or strategic partnership. The inaccuracy of any assumptions we may make could result in unanticipated consequences that could have a material adverse effect on our results of operations or financial condition.• Target-specific Risk: Assets and companies that we acquire, or companies that we enter into strategic partnerships with, will have their own risks that are specific to a particular asset or company. These risks include, but are not limited to, particular or specific regulatory, accounting, operational, reputational and industry risks, any of which could have a material adverse effect on our results of operations or financial condition. For example, we may face challenges associated with integrating other companies due to differences in corporate culture, compliance systems or standards of conduct. Indemnification rights, if any, may be insufficient to compensate us for any losses or damages resulting from such risks. In addition to regulatory approvals discussed below, certain of our merger, acquisition or partnership activity may require third-party consents in order for us to fully realize the anticipated benefits of any such transaction.
• Conditions to Regulatory Approval: We may be required to obtain various governmental and regulatory approvals to consummate certain acquisitions. We cannot be certain whether, when or on what terms and conditions, such approvals
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Table of Contentsmay be granted. Consequently, we may not obtain governmental or regulatory approval for a proposed acquisition on acceptable terms or at all, in which case we would not be able to complete the acquisition despite investing resources in pursuing it.
For additional risks related to the Transaction, see “Risks Relating to the Acquisition of Discover” and the section entitled “Risk Factors” included in our joint proxy statement/prospectus included in the registration statement declared effective by the SEC on January 6, 2025.
Reputational risk and social factors may impact our results and damage our brand.
Our ability to attract and retain customers is highly dependent upon the perceptions of consumer and commercial borrowers and deposit holders and other external perceptions of our products, services, trustworthiness, business practices, workplace culture, compliance practices or our financial health. All of Capital One’s brands are one of our most important assets. Maintaining and enhancing our brand depends largely on our ability to continue to provide high-quality products and services. Adverse perceptions regarding our reputation in the consumer, commercial, and funding markets could lead to difficulties in generating, maintaining and financing accounts. In particular, negative public perceptions regarding our reputation, including negative perceptions regarding our ability to maintain the security of our technology systems and protect customer data, could lead to decreases in the levels of deposits that current and potential consumer and commercial customers choose to maintain with us. Negative perceptions may also significantly increase the costs of attracting and retaining customers. In addition, negative perceptions regarding certain industries, partners or clients could also prompt us to cease business activities associated with those entities in order to manage reputational risk.
Negative public opinion or damage to our brand could also result from actual or alleged conduct in any number of activities or circumstances, including lending practices, regulatory compliance, cyber-attacks or other security incidents, corporate governance and sales and marketing, and from actions taken by regulators or other persons in response to such conduct. Such conduct could fall short of our customers’ and the public’s heightened expectations of companies of our size with rigorous privacy, data protection, data security and compliance practices, and could further harm our reputation. In addition, our co-brand and private label credit card partners or other third parties with whom we have important relationships may take actions over which we have limited control that could negatively impact perceptions about us or the financial services industry. The proliferation of social media may increase the likelihood that negative public opinion from any of the actual or alleged events discussed above could impact our reputation and business.In addition, a variety of economic or social factors may cause changes in borrowing activity, including credit card use, payment patterns and the rate of defaults by account holders and borrowers domestically and internationally. These economic and social factors include changes in consumer confidence levels, the public’s perception regarding the banking industry and consumer debt, including credit card use, and changing attitudes about the stigma of bankruptcy. If consumers develop or maintain negative attitudes about incurring debt, or consumption trends decline or if we fail to maintain and enhance our brand, or we incur significant expenses to do so, our reputation and business and financial results could be materially and negatively affected.There has also been an increased focus by investor advocacy groups, investment funds and shareholder activists, among others, on topics related to environmental, social and corporate governance policies, and our policies, practices and disclosure in these areas, including those related to climate change. Reputation risk related to corporate policies and practices on environmental, social and corporate governance topics is increasingly complex. Divergent ideological and social views may create competing stakeholder, legislative, and regulatory scrutiny that may impact our reputation or operations. Furthermore, responding to environmental, social and corporate governance considerations and implementing our related goals and initiatives involve risk and uncertainties, require investments and depend in part on third-party performance or data that is outside of our control. There can be no assurance that we will achieve these goals and initiatives or that any such achievements will have the desired results. Our failure or perceived failure to achieve progress in these areas on a timely basis, if at all, or incorrect perception or distortions of our goals and initiatives could impact our reputation and public perceptions of our business.If we are not able to protect our intellectual property rights, or we violate third-party intellectual property rights, our revenue and profitability could be negatively affected.We rely on a variety of measures to protect and enhance our intellectual property rights, including copyrights, trademarks, trade secrets, patents, licenses and certain restrictions on disclosure, solicitation and competition. We also undertake other measures to control access to and distribution of our other proprietary and confidential information. These measures may not be successful in protecting or enforcing our rights in every jurisdiction or preventing misappropriation of our proprietary or
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Table of Contentsconfidential information or infringement, a misappropriation or other violations of our intellectual property rights and a resulting loss of competitive advantage. In certain situations, we may be compelled to engage in intellectual property-related litigation to enforce our intellectual property rights, which may incur significant expense and may be perceived negatively by customers or industry partners, thus potentially resulting in reputational harm and may adversely impact our business, financial position and results of operations. In addition, our competitors or other third parties may obtain patents for innovations that are used in our industry or allege that our operations, marketing, trademarks, systems, processes, or technologies infringe, misappropriate or violate their intellectual property rights. Given the complex, rapidly changing and competitive technological and business environments in which we operate, if our competitors or other third parties are successful in obtaining such patents or prevail in intellectual property-related litigation or demands against us, we could lose significant revenues, incur significant license, royalty, technology development or other expenses, or pay significant damages.We license certain intellectual property and technology that are important to our business, and in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. If we fail to comply with any of these obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor (or other applicable counterparty) may cause us to lose valuable rights, and could disrupt our operations and harm our reputation. In the future, we may identify additional third-party intellectual property and technology we need, including to develop and offer new products and services. However, such licenses may not be available on acceptable terms or at all.
While we believe that we have all the necessary licenses from third parties for any intellectual property, including technology and software, that we use in the operations of our business but do not own, a third party could nonetheless allege that we are infringing its rights, which may deter our ability to obtain licenses on commercially reasonable terms from the third party, if at all, or cause the third party to commence litigation against us. Our failure to obtain necessary licenses or other rights, or litigation or claims arising out of intellectual property matters, may adversely impact our business, financial position and results of operations.
Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk.Management of market, credit, liquidity, strategic, reputational, operational and compliance risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events. See “Part II—Item 7. MD&A—Risk Management” for further details. Our Framework is designed to identify, measure, assess, monitor, test, control, report, escalate, and mitigate the risks that we face. Even though we continue to devote significant resources to operating and governing our Framework, our risk management strategies may not be fully effective in identifying and mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated.
Some of our methods of managing these risks are based upon our use of observed historical market behavior, the use of analytical and/or forecasting models and management’s judgment. These methods may not accurately predict future exposures, which could be significantly greater than the historical measures or models indicate and market conditions, particularly during a period of financial market stress, can involve unprecedented dislocations. For example, credit risk is inherent in the financial services business and results from, among other things, extending credit to customers. Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage and underwrite our consumer and commercial customers become less predictive of future charge-offs due, for example, to rapid changes in the economy, or degradation in the predictive nature of credit bureau and other data used in underwriting.
While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. For example, our ability to implement our risk management strategies may be hindered by adverse changes in the volatility or liquidity conditions in certain markets and as a result, may limit our ability to distribute such risks (for instance, when we seek to syndicate exposure in bridge financing transactions we have underwritten). We may, therefore, incur losses in the course of our risk management or investing activities.Our business could be negatively affected if we are unable to attract, develop, retain and motivate key senior leaders and skilled employees.Our success depends, in large part, on our ability to retain key senior leaders and to attract, develop and retain skilled employees, particularly employees with advanced expertise in credit, risk, digital and technology skills. We depend on our senior leaders and skilled employees to oversee simultaneous, transformative initiatives across the enterprise and execute on our
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Table of Contentsbusiness plans in an efficient and effective manner. The market for such senior leaders and skilled employees can be competitive and hard to predict, and attracting, developing and retaining them may require significant investment generally and in any given year. While we engage in robust succession planning, our key senior leaders have deep and broad industry experience and could be difficult to replace without some degree of disruption.
Our ability to attract, develop and retain qualified employees is also affected by perceptions of our culture and management, including our position on remote and hybrid work arrangements, our profile in the regions where we have offices and the professional opportunities we offer.Regulation or regulatory guidance restricting executive compensation, as well as evolving investor expectations, may limit the types of compensation arrangements that we may enter into with our most senior leaders and could have a negative impact on our ability to attract, retain and motivate such leaders in support of our long-term strategy. These laws and regulations may not apply in the same manner to all financial institutions and technology companies, which therefore may subject us to more restrictions than other institutions and companies with which we compete for talent and may also hinder our ability to compete for talent with other industries. We rely upon our senior leaders not only for business success, but also to lead with integrity. To the extent our senior leaders behave in a manner that does not comport with our values, the consequences to our brand and reputation could be severe and could adversely affect our financial condition and results of operations. If we are unable to attract, develop and retain talented senior leadership and employees, or to implement appropriate succession plans for our senior leadership, our business could be negatively affected.We face risks from catastrophic events.Natural disasters, geopolitical events and other catastrophic events could harm our employees, business and infrastructure, including our information technology systems and third-party platforms. Our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our business and the communities where we are located, which are concentrated in the Northern Virginia and New York metropolitan areas, Richmond, Virginia and Plano, Texas. This may include a disruption involving damage or loss of access to a physical site, cyber-attacks and other security incidents, terrorist activities, the occurrence or worsening of disease outbreaks or pandemics, natural disasters, extreme weather events, electrical outage, environmental hazards, disruption to technological infrastructure, communications or other services we use, our employees or third parties with whom we conduct business. Our business, financial condition and results of operations may be impacted by any such disruption and our ability to implement corresponding response measures quickly. In addition, if a natural disaster or other catastrophic event occurs in certain regions where our business, customers or assets securing our loans are concentrated, such as the mid-Atlantic, New York, California or Texas metropolitan areas, or in regions where our third-party platforms are located, we could be disproportionately impacted as compared to our competitors. The impact of such events and other catastrophes on the overall economy and our physical and transition risks may also adversely affect our financial condition and results of operations.Climate change manifesting as physical or transition risks could adversely affect our businesses, operations and customers and result in increased costs.
Climate change risks can manifest as physical or transition risks.Physical risks are the risks from the effects of climate change arising from acute, climate-related events, such as, hurricanes, flooding and wildfires, and chronic shifts in climate, such as sea level rise and higher average temperatures. Such events could lead to financial losses or disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.
Transition risks are the risks resulting from the shift toward a lower-carbon economy arising from the changes in policy, consumer and business sentiment or technologies in regards to limiting climate change. Transition risks, including changes in consumer preferences and additional regulatory requirements or taxes, could increase our expenses, affect credit performance, and impact our strategies or those of our customers. For example, on October 24, 2023, the Federal Banking Agencies jointly issued guidance on climate-related financial risk management for large institutions, which applies to us. For more information on climate-related regulatory developments, see “Item 1. Business—Supervision and Regulation.”
Physical and transition risks could also affect the financial health of certain customers in impacted industries or geographies. In addition, we face reputational risk as a result of our policies, practices, disclosures and decisions related to climate change and the environment, or the practices or involvement of our clients or vendors and suppliers, in certain industries or projects associated with causing or exacerbating climate change. In addition, due to divergent views of stakeholders, we are at increased
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Table of Contentsrisk that any action, or lack thereof, by us concerning our response to climate change could be perceived negatively by some stakeholders, which could adversely impact our reputation and businesses. Further, there is increased scrutiny of climate change-related policies, goals and disclosures, which could result in litigation and regulatory investigations and actions. We may incur additional costs and require additional resources as we evolve our strategy, practices and related disclosures with respect to these matters.
As climate risk is interconnected with many risk types, we continue to enhance processes to embed evolving climate risk considerations into our existing risk management strategies; however, because the timing and severity of climate change may not be predictable, our risk management strategies may not be effective in mitigating climate risk exposure. Additionally, estimations used in climate risk assessments have an increased level of uncertainty due to limited historical trend information and the absence of standardized, reliable and comprehensive greenhouse gas emissions data across the industry, which could cause these risk assessments to vary significantly over time or actual risks to vary from our assessments.We face risks from the use of or changes to assumptions or estimates in our financial statements.Pursuant to generally accepted accounting principles in the U.S. (“U.S. GAAP”), we are required to use certain assumptions, judgments, and estimates in preparing our financial statements, including determining our allowance for credit losses, the liability for legal actions, the fair value of certain assets and liabilities, and goodwill impairment, among other items. In addition, the FASB, the SEC and other regulatory bodies may issue new or amend existing accounting and reporting standards or change existing interpretations of those standards, including those related to assumptions and estimates we use to prepare our financial statements, in ways that we cannot predict and that could materially impact our financial statements. If actual results differ from the assumptions, judgments or estimates underlying our financial statements or if financial accounting and reporting standards are changed, we may experience unexpected material losses. For a discussion of our use of estimates in the preparation of our consolidated financial statements, see “Part II—Item 7. MD&A—Critical Accounting Policies and Estimates” and “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”The soundness of other financial institutions and other third parties, actual or perceived, could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the stability and actions of other financial services institutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty and other relationships. We have exposure to financial institutions, intermediaries and counterparties that are exposed to risks over which we have little or no control.Since 2023, several financial services institutions failed or required outside liquidity support, in many cases, as a result of the inability of the institutions to obtain needed liquidity. For example, Silicon Valley Bank, Signature Bank and First Republic Bank were closed in 2023 and placed under FDIC receivership. This has led to additional risk for other financial services institutions and the financial services industry generally as a result of increased lack of confidence in the financial sector. The failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations. For information on the FDIC’s special assessment following the closures of Silicon Valley Bank and Signature Bank, see “Item 1. Business—Supervision and Regulation.”
In addition, we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients, resulting in a significant credit concentration with respect to the financial services industry overall. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.
Likewise, adverse developments affecting the overall strength and soundness of our competitors, the financial services industry as a whole and the general economic climate and the U.S. Treasury market could have a negative impact on perceptions about the strength and soundness of our business even if we are not subject to the same adverse developments. In addition, adverse developments with respect to third parties with whom we have important relationships also could negatively impact perceptions about us. These perceptions about us could cause our business to be negatively affected and exacerbate the other risks that we face. Moreover, the speed with which information spreads through news, social media and other sources on the Internet and the ease with which customers transact may amplify the onset and negative effects from such perceptions, such as rapid deposit withdrawals or other outflows.
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FY 2025-12-31 (later)
Item 1A. Risk FactorsThe following discussion sets forth what management currently believes could be the material risks and uncertainties that could impact our businesses, results of operations and financial condition. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic and political climate may amplify many of these risks.Summary of Risk Factors
The following is a summary of the Risk Factors disclosure in this Item 1A. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our securities.• We may not be able to successfully integrate our businesses associated with the Transaction, or such integration may be more difficult, time-consuming or costly than expected.
• We will continue to incur substantial expenses related to the integration of Discover, and the expenses may be greater than anticipated due to factors, some or all of which may be outside our control.22
Capital One Financial Corporation (COF)
Table of Contents• We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected due to factors that may be outside our control.
• The integration of Discover may have an adverse effect on our business and results of operations due to the diversion of a substantial portion of the time and attention of our management team as well as potential employee attrition.
• Changes and instability in the macroeconomic environment could disrupt capital markets, reduce consumer and business activity and weaken the labor market, all of which could impact borrowers’ ability to service their debt obligations and adversely impact our financial results.
• Fluctuations in interest rates could adversely affect our business, results of operations and financial condition.
• We may not be able to maintain adequate sources of funding and liquidity to operate our business.• We may experience increases in delinquencies and credit losses, or we may incorrectly estimate expected losses, which could result in inadequate reserves.
• We may not be able to maintain adequate capital or liquidity levels or may become subject to revised capital or liquidity requirements, which could have a negative impact on our financial results and our ability to return capital to our stockholders.
• Limitations on our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends and repurchase our common stock.
• A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.• We face risks related to our operational, technological and organizational infrastructure.
• A cyber-attack or other security incident on us or third parties (including their supply chains) with which we conduct business, including an incident that results in the theft, loss, manipulation or misuse of information (including personal information), or the disabling of systems and access to information critical to business operations, may result in increased costs, reductions in revenue, reputational damage, legal exposure and business disruptions.
• We face risks resulting from the extensive use of models and data, as well as from our evolving use of AI.
• Risks of external fraud exceeding our expectations due to larger, more sophisticated, or more frequent fraud attacks, failure to detect and respond to such attacks and/or the reduced capability to recover losses from those incidents. This could result in increased fraud loss, operational cost, customer dissatisfaction, reputational damage and/or constrained revenue growth for us.• Compliance with new and existing domestic and foreign laws, regulations and regulatory expectations is costly and complex, and any significant changes may adversely affect our business.
• Our required compliance with applicable laws and regulations related to privacy, data protection and data security, in addition to compliance with our own privacy policies and contractual obligations to third parties, may increase our costs, reduce our revenue, increase our legal exposure and limit our ability to pursue business opportunities.
• Our businesses are subject to the risk of increased litigation, government investigations and regulatory enforcement.
• We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations.• A change in market preference towards other operators of payment networks and alternative payment providers could result in reduced transaction volume, limited merchant acceptance of our cards and limited issuance of cards on our networks by third parties, and in turn may impact our revenue margins.
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• If we are unsuccessful in creating and maintaining a strong base of network licensees and achieving meaningful global card acceptance, we may be unable to achieve long-term success in our recently acquired international network business.
• Our business, financial condition and results of operations may be adversely affected by legislation, regulation and merchants’ efforts to reduce the fees (including the interchange component) charged by credit and debit card networks and acquirers to facilitate card transactions.
• A reduction in the number of large merchants that accept cards on our recently acquired Discover Network or PULSE Network or in the rates they pay could materially adversely affect our business, financial condition, results of operations and cash flows.
• Defaults or risks from bankruptcies, liquidations, restructurings, consolidations and outages by our network participants may adversely affect our business, financial condition, cash flows and results of operations.• If we are not able to invest successfully in and introduce digital and other technological developments across all our businesses, our financial performance may suffer.
• We may fail to realize the anticipated benefits of our mergers, acquisitions and strategic partnerships.
• Reputational risk and social factors may impact our results and damage our brand.
• If we are not able to protect our intellectual property rights, or we violate third-party intellectual property rights, our revenue and profitability could be negatively affected.
• Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk.
• Our business could be negatively affected if we are unable to attract, develop, retain and motivate key senior leaders and skilled employees.
• We face risks from catastrophic events.
• Climate change manifesting as physical or transition risks could adversely affect our businesses, operations and customers and result in increased costs.• We face risks from the use of or changes to assumptions or estimates in our financial statements.
• The soundness of other financial institutions and other third parties, actual or perceived, could adversely affect us.Risks Relating to the Transaction and Integration of Discover
We may not be able to successfully integrate our businesses associated with the Transaction, or such integration may be more difficult, time-consuming or costly than expected.
The successful integration of two independent businesses is complex, difficult, time-consuming and costly. The success of the Transaction depends, in part, on our ability to successfully integrate Discover’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or materially decrease revenues due to loss of customers. Additionally, the success of the Transaction depends on our ability to successfully integrate Discover into our Risk Management Framework (the “Framework”) , compliance systems and corporate culture, which we believe requires extensive investment, including to enhance the risk management function at Discover consistent with our risk management standards and those of regulators, as well as to address remediation obligations under existing and possible future regulatory orders. The difficulties of combining the operations of our businesses include, among others:
• difficulties integrating operations, systems and networks, including related technology, operations and compliance programs;
• difficulties managing our expanded operations, including challenges related to management and monitoring of new operations and associated increased costs and complexity;24
Capital One Financial Corporation (COF)
Table of Contents• difficulties managing our expanded international business footprint, including risks adapting to new markets, legal and regulatory regimes, languages, businesses and cultural practices;
• challenges in conforming standards, controls, procedures and accounting and other policies, such as the integration of Discover into our Framework and corporate culture;
• risks arising from increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the Transaction, including those related to the integration process or the size, scope and complexity of our expanded business operations;
• difficulties in retaining existing personnel or hiring and integrating new personnel;
• difficulties retaining existing customers or maintaining existing customer relationships;
• diversion of management’s attention to integration matters;
• potential failures, outages, interruptions, compromises and other disruptions resulting from the integration of certain systems, networks and infrastructures, such as our third-party cloud infrastructure platforms or mainframes;
• changes in laws or regulations or in the interpretation of existing laws or regulations;
• risks arising from known or potential unknown contingencies and liabilities of Discover assumed in connection with the consummation of the Transaction; and
• risks related to the outcome of any legal, regulatory, political or community group proceedings or inquiries that may be currently pending or later instituted against us in connection with the Transaction.
The successful combination of our businesses depends on the result of the factors listed above and on the resolution of any potential unknown liabilities, adverse consequences and unforeseen events and increased expenses associated with the Transaction, some or all of which may be outside of our control. If we are unable to successfully integrate our businesses or manage risks related to the above factors, the anticipated benefits of the Transaction may not be fully realized or at all, or may take longer to realize than expected, all of which may have an adverse effect on our business, financial condition and results of operations.
We will continue to incur substantial expenses related to the integration of Discover, and the expenses may be greater than anticipated due to factors, some or all of which may be outside our control.
We have incurred and expect to incur a number of significant non-recurring costs associated with the integration of Discover. There are a large number of processes, policies, procedures, operations, technologies and systems that have been and will continue to be integrated, including purchasing, accounting and finance, payroll, cybersecurity, compliance, treasury management, customer management operations, vendor management, risk management, lines of business, pricing and benefits.
While we have assumed that a certain level of costs will be incurred, many of the expenses that we will incur are, by their nature, difficult to estimate accurately. Moreover, there are many factors beyond our control that could affect the total amount or the timing of integration expenses. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale. These expenses may result in us recording increased expenses as a result of the integration of Discover, and the amount and timing of such charges are uncertain at the present and could exceed initial estimates.
We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected due to factors that may be outside our control.
We may fail to realize the anticipated benefits of the Transaction, including, among other things, anticipated revenue and cost synergies, due to factors that may be outside our control. Our ability to continue to grow our business depends upon our ability to successfully hire, train, supervise, retain and manage new employees, obtain financing for our capital needs, expand our systems effectively, control increasing costs, allocate our human resources optimally, maintain clear lines of communication between our operational functions and our finance and accounting functions and manage the pressures on our management and administrative, operational and financial infrastructure. There can be no assurance that we will be able to accurately anticipate and respond to the changing demands we will face as we continue to expand our operations or that we will be able to achieve25
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Table of Contentsfurther growth at all. Additionally, we face risks that any business, technology, service or product we integrate from Discover may significantly under-perform relative to our expectations, and that we may not achieve the benefits we expect, which could, among other things, result in a write-down of goodwill and other intangible assets associated with the Transaction.
Other factors include, but are not limited to, changes in laws or regulations or the implementation or interpretation of laws or regulations due to, among other things, changes in government or general economic, marketplace, technological, political, legislative or regulatory conditions. For example, debit card transactions on three-party networks could become subject to the Federal Reserve’s Regulation II (Debit Card Interchange Fees and Routing) requirements, and other changes in laws or regulations or in the interpretation of existing laws or regulations could impose additional limitations on the fees issuers or networks can charge on debit or credit card transactions or require merchants to be provided an alternative network for transaction routing, any of which may have an adverse effect on our business. Other factors that also may impact our ability to achieve the anticipated benefits of the Transaction include the outcome of any legal or regulatory proceedings that may be currently pending or later instituted against us, including those related to the Card Product Misclassification.
As a result of the Transaction, we have become the legal successor to Discover and, as a result, have assumed the risks relating to actions that were or may be later instituted against Discover or us relating to Discover’s previous actions, as well as ongoing expenses in defending and resolving these actions, and are subject to reputational and other risks associated with Discover’s previous actions.
If we fail to realize the anticipated benefits of the Transaction, or if those benefits take longer to realize than expected, it could have an adverse effect on our business, financial condition and results of operations.
The integration of Discover may have an adverse effect on our business and results of operations due to the diversion of a substantial portion of the time and attention of our management team as well as potential employee attrition.
Our management team has spent, and continues to spend, a significant amount of time and effort focusing on the integration of Discover. This diversion of attention may have an adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the time it takes to complete the integration is protracted. During this period of integration, our employees may face distraction and uncertainty, and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain members of our management team and other key personnel could also impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.General Economic and Market RisksChanges and instability in the macroeconomic environment could disrupt capital markets, reduce consumer and business activity and weaken the labor market, all of which could impact borrowers’ ability to service their debt obligations and adversely impact our financial results.
Changes or instability in the macroeconomic environment may impact payment patterns, consumer spending and credit losses. Because we offer a broad array of financial products and services to consumers, small businesses and commercial clients, our financial results are impacted by the level of consumer and business activity and the demand for our products and services. A prolonged period of economic weakness, volatility, slow growth or a significant deterioration in economic conditions, in the countries in which we operate, could have a material adverse effect on our financial condition and results of operations as customers or commercial clients default on their loans, maintain lower deposit levels or, in the case of credit card accounts, carry lower balances and reduce credit card purchase activity.
Some of the factors that could disrupt capital markets, reduce consumer and business activity and weaken the labor market include the following:
• Monetary policy actions, such as changes to interest rates, taken by the Federal Reserve and other central banks, such as the central banks in the U.K. and Canada, and a growing fiscal deficit and increase in the U.S. debt-to-gross domestic product ratio;
• Fiscal policy actions, such as changes to applicable tax codes and programs supported by government funding (e.g., Medicaid, Medicare, Social Security);26
Capital One Financial Corporation (COF)
Table of Contents• Geopolitical conflicts or instabilities, such as the war in Ukraine, the ongoing conflict in the Middle East and the political instability in Venezuela and increased geopolitical tensions between the U.S. and China;
• Trade wars, trade barriers, tariffs, economic sanctions, labor shortages and disruptions of global supply chains, including their impacts on the auto industry;
• The effects of stalemates in the U.S. government, including government shutdowns whether recurring, prolonged or otherwise, developments related to the U.S. federal debt ceiling, default by the U.S. government on its debt obligations, or related credit-rating downgrades;
• Inflation and deflation, including the effects of related governmental responses;
• Concerns over a potential recession, which may lead to adjustments in spending patterns;
• Technology-driven disruption of certain industries, such as those due to advances in AI, robotics and cryptocurrency;
• Adverse developments impacting the U.S. or global banking industry, including bank failures, the failure of non-bank financial institutions and liquidity concerns and fluctuations or other significant changes in both debt and equity capital markets and currencies;
• Changes in immigration policies and their impact to the labor market;
• Lower demand for credit such as loans and shifts in consumer behavior, including shifts away from using credit cards or deposits, other changes in deposit practices and changes in payment patterns; and
• Changes in usage of commercial real estate, which may have a sustained negative impact on utilization rates and values.
Decreases in overall business activity and changes in customer behavior (such as the increased use of debt settlement companies) may lead to increases in our charge-off rate caused by bankruptcies and may reduce our ability to recover debt that we have previously charged off. Such changes may also decrease the reliability of our internal processes and models, including those we use to estimate our allowance for credit losses, particularly if unexpected variations in key inputs and assumptions cause actual losses to diverge from the projections of our models and our estimates become increasingly subject to management’s judgment. See “ We face risks resulting from the extensive use of models and data, as well as from our evolving use of AI. ”
Additionally, we have and may in the future implement measures to tighten credit access in response to certain consumer and economic indicators that have or may in the future impact our financial performance, such as purchase volume and new accounts.Fluctuations in interest rates could adversely affect our business, results of operations and financial condition.Like other financial institutions, our business is sensitive to interest rate movements. The timing, pace and direction of additional interest rate changes remains uncertain, and will largely depend on trends in inflation, employment and other macroeconomic factors that are outside of our control. Changes in interest rates could adversely affect the results of our operations and financial condition. For example, rapid changes in interest rates make it difficult for us to balance our loan and deposit portfolios, which may adversely affect our results of operations by, for example, reducing asset yields or spreads, or having other adverse impacts on our business. Higher interest rates may increase our borrowing costs, require us to increase the interest we pay on funds deposited with us and reduce the market value of our securities holdings. If interest rates increase or if higher interest rates persist for an extended period of time, our expenses may increase further. While higher interest rates generally enhance our ability to grow our net interest income, there are potential risks associated with operating in a higher interest rate environment. For example, some customers have been and may continue to be less willing or able overall to borrow at higher interest rates. Higher interest rates also have hindered and may continue to hinder the ability of some borrowers to support required loan payments. On the other hand, if the rate of economic growth decreased sharply, causing the Federal Reserve to lower interest rates, our net income could be adversely affected as our variable-rate assets tend to be more immediately responsive to changes in market rates than most deposit liabilities.
Additionally, interest rate fluctuations and competitor responses to those changes may have a material adverse effect on our financial condition and results of operations, as customers or commercial clients default on their loans, maintain lower deposit27
Capital One Financial Corporation (COF)
Table of Contentslevels or, in the case of credit card accounts, reduce demand for credit or (for existing customers) the level of borrowing or purchase activity. For example, increases in interest rates increase debt service requirements for some of our borrowers, which may adversely affect those borrowers’ ability to pay as contractually obligated. This could result in additional or fluctuating delinquencies or charge-offs and negatively impact our results of operations. These changes could reduce the overall yield on our interest-earning asset portfolio.
We assess our interest rate risk by estimating the effect on our net interest income and earnings, economic value and capital under various interest rate scenarios of different direction and magnitude. We take risk mitigation actions based on those assessments. For example, the Company employs various hedging strategies to mitigate the interest rate, foreign exchange and market risks inherent in many of our assets and liabilities. The Company’s hedging strategies rely considerably on assumptions and projections regarding our assets and liabilities as well as general market factors. If any of these assumptions or projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates, foreign exchange rates and other market factors, the Company may experience volatility in our earnings that could adversely affect our profitability and financial condition. We face the risk that changes in interest rates could materially reduce our net interest income and our earnings, especially if actual conditions turn out to be materially different than those we assumed.
Changes in valuations in the debt and equity markets could have a negative impact on the assets we hold in our investment portfolio. Such market changes could also have a negative impact on the valuation of assets for which we provide servicing. See “Part II—Item 7. MD&A—Market Risk Profile” and “ We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations ” for additional information.
We may not be able to maintain adequate sources of funding and liquidity to operate our business.
We may not be able to maintain adequate sources of funding and liquidity to fund our operations, grow our business, pay our outstanding liabilities and meet regulatory expectations. Our ability to borrow from other financial institutions or to engage in funding transactions on favorable terms or at all could be adversely affected by factors outside of our control, including disruptions, uncertainty or volatility in the capital markets, as well as changes in consumer behavior that could affect the stability or availability of our retail deposit funding. Additionally, increased charge-offs, interest rate volatility, increased refinancing activity and other events may cause our securitization transactions to amortize earlier than scheduled or reduce the value of the securities that we hold for liquidity purposes, which could accelerate our need for additional funding from other sources. We could also experience impairments of other financial assets and other negative impacts on our financial position, including possible constraints on liquidity and capital, as well as higher costs of capital.
In addition, our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include increases in funding costs, downturns in the geographic markets in which our loans and operations are concentrated, difficulties in credit markets or unforeseen outflows of cash or collateral, including as a result of unusual effects in the market.
Our ability to fund our business and our liquidity position also depend on our ability to attract or maintain deposits. Many other financial institutions have increased their reliance on deposit funding and, as such, we expect continued competition in the deposit markets, including with some financial institutions with tokenized deposit programs. We cannot predict how this competition will affect our costs. If we are required to offer higher interest rates to attract or maintain deposits, our funding costs will be adversely impacted. Although we have historically been able to meet the liquidity needs of customers as necessary, the ability to do so is not assured, especially if a large number of our depositors seek to withdraw their accounts or if our customers seek significant draws on their credit lines, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations and financial condition.Credit Risk
We may experience increases in delinquencies and credit losses, or we may incorrectly estimate expected losses, which could result in inadequate reserves.Like other lenders, we face the risk that our customers will not repay their loans. A customer’s ability and willingness to repay us can be adversely affected by decreases in the income of the borrower or increases in their payment obligations to other lenders, whether as a result of a job loss, higher debt levels or rising cost of servicing debt, inflation outpacing wage growth, or by restricted availability of credit generally. We may fail to quickly identify and reduce our exposure to customers that are
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likely to default on their payment obligations, whether by closing credit lines or restricting authorizations. Our ability to manage credit risk also is affected by legal or regulatory changes (such as restrictions on collections, bankruptcy laws, minimum payment regulations and re-age guidance), competitors’ actions and consumer behavior, and depends on the effectiveness of our collections staff, techniques and models. Additionally, there can be no assurance that we can effectively integrate Discover’s business into our credit models in a manner that will be effective at predicting credit outcomes.Rising credit losses or leading indicators of rising credit losses (such as higher delinquencies, higher rates of nonperforming loans, higher bankruptcy rates, lower collateral values, elevated unemployment rates or changing market terms) may require us to increase our allowance for credit losses, which would decrease our profitability if we are unable to raise revenue or reduce costs to compensate for higher credit losses, whether actual or expected. In particular, we face the following risks in this area:• Missed Payments : Our customers may fail to make required payments on time and may default or become delinquent. Loan charge-offs (including from bankruptcies) are generally preceded by missed payments or other indications of worsening financial conditions for our customers. Historically, customers are more likely to miss payments during an economic downturn, recession, periods of high unemployment, or prolonged periods of slow economic growth. Customers might also be more likely to miss payments if the payment burdens on their existing debt grow due to higher interest rates, or if inflation outpaces wage growth.
• Incorrect Estimates of Expected Credit Losses : The credit quality of our loan portfolios can have a significant impact on our earnings. We allow for and reserve against credit risks based on our assessment of expected credit losses in our loan portfolios. This process, which is critical to our financial condition and results of operations, requires complex judgments, including forecasts of economic conditions. We may underestimate our expected credit losses and fail to hold an allowance for credit losses sufficient to account for these credit losses. Incorrect assumptions could lead to material underestimations of expected credit losses and an inadequate allowance for credit losses. See “ We face risks resulting from the extensive use of models and data, as well as from our evolving use of AI. ”• Inaccurate Underwriting : Our ability to accurately assess the creditworthiness of our customers may diminish, which could result in an increase in our credit losses and a deterioration of our returns. See “ Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk. ”
• Business Mix : We engage in a diverse mix of businesses with a broad range of potential credit exposure. Because we originate a relatively greater proportion of consumer loans in our loan portfolio compared to other large bank peers and originate both prime and subprime credit card accounts and auto loans, we may experience higher delinquencies and a greater number of accounts charging off, as well as greater fluctuations in those metrics, compared to other large bank peers, which could result in increased credit losses, operating costs and regulatory scrutiny. Additionally, a change in this business mix over time to include proportionally more consumer loans or subprime credit card accounts or auto loans could adversely affect the credit quality of our loan portfolios.• Counterparty Credit Risk : In addition to consumer credit risk, we are exposed to counterparty credit risk arising from business-facing activities, including our operation of the Global Payment Network and related arrangements. These activities include purchasing for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. If one or more of these counterparties fail to perform on their obligations to us, for example, by failing to meet settlement, reimbursement or guarantee obligations, or by experiencing financial or operational distress, we could experience losses, delayed or disrupted settlement of transactions, increased funding and liquidity needs, higher credit losses or other adverse effects on our business, financial condition and results of operations.
• Increasing Charge-off Recognition/Allowance for Credit Losses : We account for the allowance for credit losses according to accounting and regulatory guidelines and rules, including Financial Accounting Standards Board (“FASB”) standards and the Federal Financial Institutions Examination Council (“FFIEC”) Account Management Guidance. We measure our allowance for credit losses under the current expected credit losses (“CECL”) standard, which is based on management’s best estimate of expected lifetime credit losses. The impact of measuring our allowance for credit losses on our results will depend on the characteristics of our financial instruments, economic conditions, and our economic and loss forecasts.
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Table of Contents• Insufficient Asset Values : The collateral we have on secured loans could be insufficient to compensate us for credit losses. When customers default on their secured loans, we attempt to recover collateral where permissible and appropriate. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan, and we may be unsuccessful in recovering the remaining balance from our customers. Decreases in real estate and other asset values adversely affect the collateral value for our commercial lending activities, while the auto business is similarly exposed to collateral risks arising from the auction markets that determine used car prices. Borrowers may be less likely to continue making payments on loans if the value of the property used as collateral for the loan is less than what the borrower owes, even if the borrower is still financially able to make the payments. In that circumstance, the recovery of such property could be insufficient to compensate us for the value of these loans upon a default. For example, high vacancy rates in commercial properties may affect the value of commercial real estate, including by causing the value of properties securing commercial real estate loans to be less than the amounts owed on such loans. In our auto business, business and economic conditions that negatively affect household incomes and savings, housing prices and consumer behavior, as well as technological advances that make older cars obsolete faster, could decrease (i) the demand for new and/or used vehicles and (ii) the value of the collateral underlying our portfolio of auto loans, which could cause the number of consumers who become delinquent or default on their loans to increase.• Geographic and Industry Concentration : Although our consumer lending is geographically diversified, approximately 36% of our commercial real estate loan portfolio is concentrated in the Northeast region. The regional economic conditions in the Northeast affect the demand for our commercial products and services as well as the ability of our customers to repay their commercial real estate loans and the value of the collateral securing these loans. An economic downturn, prolonged period of slow economic growth, catastrophic event or natural disaster that disproportionately affects the Northeast region could have a material adverse effect on the performance of our commercial real estate loan portfolio and our results of operations. In addition, our Commercial Banking strategy includes an industry-specific focus. If any of the industries that we focus on experience changes, we may experience increased credit losses and our results of operations could be adversely impacted.Capital and Liquidity Risk
We may not be able to maintain adequate capital or liquidity levels or may become subject to revised capital or liquidity requirements, which could have a negative impact on our financial results and our ability to return capital to our stockholders.Financial institutions are subject to extensive and complex capital and liquidity requirements, which are subject to change. These requirements affect our ability to lend, grow deposit balances, make acquisitions and distribute capital. Failure to maintain adequate capital or liquidity levels, whether due to adverse developments in our business or the economy or to changes in the applicable requirements, could subject us to a variety of restrictions and/or remedial actions imposed by our regulators. These include limitations on the ability to pay dividends or repurchase shares and the issuance of a capital directive to increase capital. Such limitations or capital directive could have a material adverse effect on our business and results of operations. For example, changes to applicable capital, liquidity or other regulations, such as the Basel III Finalization Proposal, could result in increased regulatory capital requirements, operating expenses or cost of funding, which could negatively affect our financial results or our ability to distribute capital.
We consider various factors in the management of capital, including the impact of both internal and supervisory stress scenarios on our capital levels as determined by our internal modeling and the Federal Reserve’s estimation of losses in supervisory stress scenarios that are used to annually set our stress capital buffer requirement. Although the Federal Reserve has issued the Stress Testing Transparency Proposal, there can be significant differences between our modeling and the Federal Reserve’s projections for a given supervisory stress scenario and between the capital needs suggested by our internal stress scenarios and the supervisory stress scenarios. Therefore, although our estimated capital levels under stress disclosed as part of the stress testing processes may suggest that we have a particular capacity to return capital to stockholders and remain well capitalized under stress, the Federal Reserve’s modeling, our internal modeling of another scenario or other factors related to our capital management process may reflect a lower capacity to return capital to stockholders than that indicated by the projections released in the stress testing processes. This, in turn, could lead to restrictions on our ability to pay dividends and engage in repurchases of our common stock. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.
We also consider various factors in the management of liquidity, including maintaining sufficient liquid assets to meet the requirements of several internal and regulatory stress tests. Regulatory liquidity stress testing, regulatory liquidity requirements
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Table of Contentsand internal stress tests may, therefore, require us to take actions to increase our liquid assets or alter our activities or funding sources, which could negatively affect our financial results or our ability to return capital to our stockholders. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.
Additionally, growth in our total consolidated assets (including as a result of our acquisition of Discover) or cross-jurisdictional activity could affect the Company’s continued classification as a Category III institution. If the Company were to have $700 billion or more in total consolidated assets or $75 billion or more in cross-jurisdictional activity, each as measured based on the average for the four most recent calendar quarters, the Company and the Bank would become subject to more stringent capital and liquidity regulations as a Category II institution and Category II bank, respectively. For example, if the Company were to become a Category II institution, each of the Company and Bank would become subject to the full LCR requirement, which would multiply its total net cash flows by an outflow adjustment percentage of 100% (rather than 85%), and the full NSFR requirement, which would require it to maintain an available stable funding in an amount at least equal to 100% (rather than 85%) of its required stable funding, as well as required daily (rather than monthly) liquidity reporting. In addition, unlike Category III institutions, Category II institutions are not permitted to exclude AOCI from regulatory capital calculations and are subject to a more stringent capital deductions framework as well as the advanced approaches framework under the current Basel III Capital Rules. Although the Company is currently a Category III institution, we cannot predict with certainty whether or when future growth will result in its exceeding the applicable thresholds for classification as a Category II institution.Limitations on our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends and repurchase our common stock.We are a separate and distinct legal entity from our subsidiaries, including, without limitation, the Bank and our broker-dealer subsidiaries. Dividends to us from these direct and indirect subsidiaries have represented a major source of funds for us to pay dividends on our common and preferred stock, repurchase our common stock, make payments on corporate debt securities and meet other obligations. These capital distributions may be limited by law, regulation or supervisory policy. There are various federal law limitations on the extent to which the Bank can finance or otherwise supply funds to us through dividends and loans. These limitations include minimum regulatory capital and capital buffer requirements, federal banking law requirements concerning the payment of dividends out of net profits or surplus, and Sections 23A and 23B of the Federal Reserve Act and Regulation W governing transactions between an insured depository institution and its affiliates, as well as general federal regulatory oversight to prevent unsafe or unsound practices. Our broker-dealer subsidiaries are also subject to laws and regulations, including net capital requirements, that may limit their ability to pay dividends or make other distributions to us. If our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our liquidity may be affected and we may not be able to make dividend payments to our common or preferred stockholders, repurchase our common stock, make payments on outstanding corporate debt securities or meet other obligations, each and any of which could have a material adverse impact on our results of operations, our financial position or the perception of our financial health. The frequency and size of any future dividends to our stockholders and our stock repurchases will depend upon any applicable regulatory requirements and our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory review and other factors as further described in “Part I—Item 1. Business—Supervision and Regulation.”A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.Our credit ratings are based on a number of factors, including financial strength, as well as factors not within our control, such as conditions affecting the financial services industry generally, the macroeconomic environment and changes made by rating agencies to their methodologies or ratings criteria. There can be no assurance we will be able to maintain our current ratings and outlooks. Our ratings could be downgraded at any time and without any notice by any of the rating agencies, which could, among other things, adversely affect our ability to borrow funds, increase our funding cost, increase our cost of capital, limit the number of investors or counterparties willing to do business with or lend to us, adversely limit our ability to access the capital markets and result in additional collateral requirements under certain of our existing agreements, all of which could have a negative impact on our results of operations.
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Table of ContentsOperational Risk
We face risks related to our operational, technological and organizational infrastructure.Our ability to retain and attract customers depends on our ability to develop, operate and adapt our technology and organizational infrastructure in a rapidly changing environment. In addition, we must accurately process, record and monitor an increasingly large number of complex transactions. Digital technology, cloud-based services, data and software development are deeply embedded into our business model and how we work.
Similar to other large corporations in our industry, we are exposed to operational risk that can manifest itself in many ways, such as errors in execution, inadequate processes, inaccurate models, faulty or disabled technological infrastructure, malicious disruption and fraud by employees or persons outside of our company, whether through attacks on Capital One directly, or on our third-party service providers or customers. In addition, the increased use of near real-time money movement solutions and the use of AI, as well as other emerging technologies, increases the complexity of preventing, detecting and recovering fraudulent transactions. We are also heavily dependent on the security, capability, integrity and continuous availability of the technology systems and networks that we use to manage our internal financial and other systems, monitor risk and compliance with regulatory requirements, provide services to our customers, develop and offer new products and communicate with stakeholders. In addition, our employees, service providers, partners and other third parties with whom we interact may expose us to certain risks as a result of human error or misconduct. For example, errors in processing wire transfers may result in the inadvertent release of funds in incorrect amounts or to incorrect recipients, and we may be unable to recover such funds. In addition, in connection with the integration of Discover, we may experience increased risks associated with processing a large volume of transactions in multiple currencies and in jurisdictions where we have not historically operated.
We also face the risk of adverse customer impacts and business disruption arising from the execution of strategic initiatives and operational plans we may pursue across our operations. For example, when we launch a new product, service or platform for the delivery or distribution of products or services, acquire or invest in a business or make changes to an existing product, service or delivery platform, there is the risk of execution issues related to changes to technology, operations or processes. These issues could be driven by insufficient mitigation of operational risks associated with the change implementation, inadequate training, failure to account for new or changed requirements, or failure to identify or address impacted downstream processes. Furthermore, ineffective change management oversight and governance over the execution of our key projects and initiatives could expose us to operational, strategic and reputational risk and could negatively impact customers or our financial performance. In addition, we may experience increased costs, compliance issues, and/or disruptions due to our hybrid work model, which could also affect our ability to operate effectively.
If we do not maintain the necessary operational, technological and organizational infrastructure to operate our business, including to maintain the resiliency and security of that infrastructure, our business and reputation could be materially adversely affected. We also are subject to disruptions to our systems or networks arising from events that are wholly or partially beyond our control, which may include computer viruses; computer, telecommunications, network, utility, electronic or physical infrastructure outages; bugs, errors, insider threats, design flaws in systems, networks or platforms; availability and quality of vulnerability patches from key vendors, cyber-attacks and other security incidents, natural disasters, other damage to property or physical assets, or events arising from local or larger scale politics, including civil unrest, terrorist acts and military conflict. Any failure to maintain our infrastructure or prevent disruption of our systems, networks and applications could diminish our ability to operate our businesses, service customer accounts and protect customers’ information, or pay our debts in a timely manner (which could limit our access to future funding), or result in potential liability to customers and business partners, reputational damage, regulatory intervention and customers’ loss of confidence in our businesses, any of which could result in a material adverse effect.
We also rely on the business infrastructure and systems of third-party service providers (and their supply chains) with which we do business and/or to whom we outsource the operation, maintenance and development of our information technology and communications systems. Other than the ongoing integration of Discover, we have substantially migrated primarily all aspects of our core information technology infrastructure and systems and customer-facing applications to third-party cloud infrastructure platforms, principally AWS. If we fail to architect, administer or oversee these environments in a well-managed, secure and effective manner, or if such platforms become unavailable, are disrupted, fail to scale, do not operate as designed or do not meet their service level agreements for any reason, we may experience unplanned service disruption or unforeseen costs which could result in material harm to our business and operations. We must successfully develop and maintain information, financial reporting, disclosure, privacy, data protection, data security and other controls adapted to our reliance on outside platforms and providers. Weakness in our third-party service providers’ processes or controls could impact our ability to deliver
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Table of Contentsproducts or services to our customers and expose us to compliance and operational risks. In addition, AWS or other service providers (including, without limitation, those who also rely on AWS) have experienced and may continue to experience system or telecommunication breakdowns or failures, outages, degradation in service, downtime, failure to scale, software bugs, design flaws, cyber-attacks and other security incidents, insider threats, adverse changes to financial condition, bankruptcy or other adverse conditions (including conditions which interfere with our access to and use of AWS) that are outside of our control, any of which could have a material adverse effect on our business and reputation. For example, in January 2025, we experienced a multi-day system outage due to a technical issue experienced by FIS, a third-party service provider, which temporarily impacted certain services for some of our customers. Although we were able to reconnect our systems following restoration of the vendor’s capabilities, there can be no assurance that we will not experience additional system outages in the future as a result of technical issues experienced by our third-party vendors. Any such service outage, particularly where the vendor is the single source from which we obtain such services, could significantly disrupt our business or negatively impact the relationship we have with customers that rely on such services. We also face a risk that our third-party service providers might be unable or unwilling to continue to provide services to meet our current or future needs in an efficient, cost-effective or favorable manner or may terminate or seek to terminate their contractual relationship with us. Any transition to alternative third-party service providers or internal solutions may be difficult to implement, may cause us to incur significant time and expense and may disrupt or degrade our ability to deliver our products and services. Thus, the substantial amount of our infrastructure that we outsource to AWS or to other third-party service providers may increase our risk exposure.
Any disruptions, failures or inaccuracies of our operational processes, technology systems, networks and models, including those associated with improvements or modifications to such technology systems, networks and models, or failure to identify or effectively respond to operational risks in a timely manner and continue to deliver our services through an operational disruption, could cause us to be unable to market, deliver and manage our products and services, manage our risk, meet our regulatory obligations, report our financial results in a timely and accurate manner, or pay our debts in a timely manner (which could limit our access to future funding), all of which could have a negative impact on our results of operations. In addition, our ongoing investments in technology may increase our expenses. As our business develops, changes or expands, additional expenses can arise as a result of a reevaluation of business strategies or risks, management of outsourced services, asset purchases or other acquisitions, structural reorganization, compliance with new laws or regulations, the integration of newly acquired businesses or the prevention or occurrence of cyber-attacks and other security incidents. If we are unable to successfully manage our expenses, our financial results will be negatively affected. Changes to our business, including those resulting from our strategic imperatives, also require robust governance to ensure that our objectives are executed as intended without adversely impacting our customers, associates, operations or financial performance. Further, any of the foregoing risks could be heightened and we could experience failures, outages and other disruptions as a result of the integration of Discover, including the migration of and other changes to Discover’s data, systems, networks and infrastructure to our infrastructure platforms.A cyber-attack or other security incident on us or third parties (including their supply chains) with which we conduct business, including an incident that results in the theft, loss, manipulation or misuse of information (including personal information), or the disabling of systems and access to information critical to business operations, may result in increased costs, reductions in revenue, reputational damage, legal exposure and business disruptions.Our ability to provide our products and services and communicate with our customers and network participants depends upon the management and safeguarding of information systems and infrastructure, networks, software, data, technology, methodologies and business secrets, including those of our service providers. Our products and services involve the collection, authentication, management, usage, storage, transmission and destruction of sensitive and confidential information, including personal information, regarding our customers and their accounts, our employees, our partners and other third parties with which we do business. We also have arrangements in place with third-party business partners through which we share and receive information about their customers who are or may become our customers. The financial services industry, including Capital One, is particularly at risk because of the increased use of and reliance on digital banking products and other digital services, including mobile banking products, such as mobile payments, and other internet- and cloud-based products and applications, and the development of additional remote connectivity solutions, which increase cybersecurity risks and exposure. In addition, global events and geopolitical instability may lead to increased nation-state targeting us and other financial institutions in the U.S. and abroad, particularly given our expanded global footprint.
Technologies, systems, networks and other devices of Capital One, as well as those of our employees, service providers, insiders, customers, partners, network participants, including merchants, and other third parties with whom we interact, have been and may continue to be the subject of cyber-attacks and other security incidents, including computer viruses, hacking,
33Capital One Financial Corporation (COF)
Table of Contentsmalware, ransomware, denial of service attacks, supply chain attacks, exploitation of vulnerabilities, credential stuffing, account takeovers, insider threats, business email compromise scams or the use of phishing, vishing (through voice messages), smishing (through SMS text), “deep fakes,” or other forms of social engineering. Such cyber-attacks and other security incidents are designed to lead to various harmful outcomes, such as unauthorized transactions in Capital One accounts, unauthorized or unintended access to or release, gathering, monitoring, disclosure, loss, destruction, corruption, disablement, encryption, misuse, modification or other processing of confidential or sensitive information (including personal information), intellectual property, software, methodologies or business secrets, disruption, sabotage or degradation of service, systems or networks, an attempt to extort Capital One, its third-party service providers or its business partners or other damage. Cyber-attacks and other security incidents that occur in the supply chain of third parties with which we interact could also negatively impact Capital One.
These threats may derive from, among other things, error, fraud or malice on the part of our employees, service providers, insiders, customers, partners, network participants, including merchants, or other third parties with whom we interact or may result from accidental technological failure or design flaws. Any of these parties may attempt to fraudulently induce employees, service providers, insiders, customers, partners, network participants, including merchants, or other third-party users of our systems or networks to disclose confidential or sensitive information (including personal information) in order to gain access to our systems, networks or data or that of our customers, partners, network participants, including merchants, or other third parties with whom we interact, or to unlawfully obtain monetary benefit through misdirected or otherwise improper payment. For instance, any party that obtains our confidential or sensitive information (including personal information) through a cyber-attack or other security incident may use this information for ransom, to be paid by us or a third party, as part of a fraudulent activity that is part of a broader criminal activity, or for other illicit purposes. Additionally, the failure of our employees, service providers, insiders, customers, partners, network participants, including merchants, or other third parties with whom we interact, or their respective supply chains, to exercise sound judgment and vigilance when targeted with social engineering or other cyber-attacks may increase our vulnerability.For example, on July 29, 2019, we announced that on March 22 and 23, 2019 an outside individual gained unauthorized access to our systems (the “2019 Cybersecurity Incident”). This individual obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers. While the 2019 Cybersecurity Incident has been remediated, it resulted in fines, litigation, consent orders, settlements, government investigations and other regulatory enforcement inquiries. Cyber and information security risks for large financial institutions like us continue to increase due to the proliferation of new technologies, the industry-wide shift to reliance upon the internet to conduct financial transactions, the increased sophistication and activities of malicious actors, organized crime, perpetrators of fraud, hackers, terrorists, activists, extremist parties, formal and informal instrumentalities of foreign governments, state-sponsored or nation-state actors and other external parties and the growing use of AI by threat actors.In addition, our customers access our products and services using personal devices that are necessarily external to our security control systems. There has also been a significant proliferation of consumer information available on the internet resulting from breaches of third-party entities, including personal information, log-in credentials and authentication data. These third-party breach events could create a threat for our customers if their Capital One log-in credentials are the same as or similar to the credentials that have been compromised on other internet sites. This threat could include the risk of unauthorized account access, data loss and fraud. The use of AI, “bots” or other automation software can increase the velocity and efficacy of these types of attacks and such use by companies has resulted in, and may continue to result in, cyber-attacks and other security incidents that implicate the sensitive and confidential information, including personal information, of AI users. As our employees and contractors are operating under our hybrid work model, our remote interaction with employees, service providers, partners and other third parties on systems, networks and environments over which we have less control (such as through employees’ personal devices) increases our cybersecurity risk exposure. We will likely face an increasing number of attempted cyber-attacks as we expand our mobile and other internet-based products and services, expand our usage of mobile, cloud and other internet-based technologies, increase international merchant acceptance of credit cards issued on the Discover Network, acquire new business operations or outsource certain business operations and otherwise attempt to keep pace with rapid technological changes in the financial services industry.
The methods and techniques employed by malicious actors continue to develop and evolve rapidly, including from emerging technologies, such as AI and quantum computing, are increasingly sophisticated and often are not fully recognized or understood until after they have occurred, and some techniques could occur and enable persistent access for an extended period of time before being detected and remediated, if at all. We and our service providers and other third parties with which we interact may be unable to anticipate or identify certain attack methods or techniques in order to implement effective
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Table of Contents
preventative or detective measures or mitigate or remediate the damages caused in a timely manner. Similarly, any cyber-attack or other security incident, information or security breach or technology failure that significantly exposes, degrades, destroys or compromises our information systems or networks could adversely impact third parties and the critical infrastructure of the financial services industry, thereby creating additional risk for us.We may also be unable to hire, develop and retain talent that keeps pace with the rapidly changing cyber threat landscape, and which are capable of preventing, detecting, mitigating or remediating these risks. Although we seek to maintain a robust suite of authentication and layered information security controls, any one or combination of these controls could fail to prevent, detect, mitigate, remediate or recover from these risks in a timely manner.An actual, suspected, threatened or alleged disruption or breach, including as a result of a cyber-attack, or media (including social media) reports of alleged or perceived security vulnerabilities or incidents at Capital One or at our service providers, could result in significant legal and financial exposure, regulatory intervention, litigation, enforcement actions, remediation costs, card reissuance, inability to timely pay our debts (and consequently limit our access to future funding), operational disruptions, supervisory liability, damage to our reputation or loss of confidence in the security of our systems, products and services that could adversely affect our business. Moreover, we are subject to varied cybersecurity laws and regulations and incident reporting requirements, and may in the future be subject to new cybersecurity laws and regulations and incident reporting requirements, which could require us to publicly disclose certain information about certain cybersecurity incidents before they have been resolved or fully investigated, and any delays in receiving timely information from impacted service providers and business partners can affect our ability to fully meet applicable disclosure requirements for a given incident. There can be no assurance that unauthorized access or cyber incidents will not occur or that we will not suffer material losses in the future. If future attacks are successful or if customers are unable to access their accounts online for other reasons, it could adversely impact our ability to service customer accounts or loans, complete financial transactions for our customers or otherwise operate any of our businesses or services. In addition, a breach or attack affecting one of our service providers or other third parties with which we interact could harm our business even if we do not control the service that is attacked.
Further, our ability to monitor our service providers’ and other business partners’ cybersecurity practices is inherently limited. Although the agreements that we have in place with our service providers and other business partners generally include requirements relating to privacy, data protection and data security, we cannot guarantee that such agreements will prevent a cyber incident impacting our systems or information or enable us to obtain adequate or any reimbursement from our service providers or other business partners in the event we should suffer any such incidents. However, due to applicable laws and regulations or contractual obligations, we may be held responsible for cyber incidents attributed to our service providers and other business partners as they relate to the information we share with them.
In addition, we continue to incur increased costs with respect to preventing, detecting, investigating, mitigating, remediating and recovering from cybersecurity risks, as well as any related attempted fraud. In order to address ongoing and future risks, we must expend significant resources to support protective security measures, investigate and remediate any vulnerabilities of our information systems and infrastructure and invest in new technology designed to mitigate security risks. Further, high-profile cyber incidents at Capital One or other large financial institutions could undermine our competitive advantage and divert management attention and resources, lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our security measures or the global financial system in general, which could result in reduced use of our financial products. We have insurance against some cyber risks and attacks; nonetheless, our insurance coverage may not be sufficient to offset the impact of a material loss event (including if our insurer denies coverage as to any particular claim in the future), and such insurance may increase in cost or cease to be available on commercially reasonable terms, or at all, in the future. In addition, in the case of any cyber-attack or other security incident, information or security breach or technology failure arising from third-party systems impacting us, any third-party indemnification may not be applicable or sufficient to address the impact of such incidents.
Furthermore, the Transaction exposes us to additional cybersecurity risks, which we expect to continue until the integration of Discover is completed. These risks include the possibility of previously undetected cybersecurity threats in Discover's operations, systems and networks, as well as risks related to the cybersecurity posture of Discover and its third-party service providers. The materialization of such risks could lead to the degradation or disruption of our operations and services; unauthorized access; breach of confidentiality; and misuse or modification of systems, networks and data. Additionally, in connection with the integration of Discover, failures or difficulties in retaining new personnel, including those with access to our confidential or sensitive information (including personal information), and other difficulties in the organizational,
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Table of Contentstechnological and cultural integration process may heighten the risk of cyber-attacks and other security incidents, including as a result of human error, fraud or malice on the part of current or former employees.We face risks resulting from the extensive use of models and data, as well as from our evolving use of AI.We rely on quantitative models and, in some cases, the use of AI. We also rely on our ability to manage and aggregate data in an accurate and timely manner, to assess and manage our various risk exposures, to create estimates and forecasts, and to manage compliance with regulatory capital requirements. In particular, we use models and AI in certain processes and may expand our use of AI in additional processes in the future. Some examples may include determining the pricing of products, identifying potentially fraudulent transactions, grading loans, extending credit, measuring market and interest rate risks, predicting deposit levels or loan losses, assessing capital adequacy, estimating the value of financial instruments and balance sheet items, software development, personalizing customer experiences and other operational functions. We continue to invest in building new capabilities that use new AI technologies, such as generative AI, and we expect our use of these technologies to increase over time.
However, there are significant risks involved in using models and AI, and we cannot assure that our use will enhance our businesses or produce only the intended or beneficial results. For example, generative AI has been known to produce false or “hallucinatory” inferences or output. Certain generative AI tools use machine learning and predictive analytics, which can create inaccurate, incomplete or misleading outputs; unexpected results; or errors or inadequacies, any of which may not be easily detectable. In addition, models and AI that are based on historical data sets might not be accurate predictors of future outcomes. The ability of models and AI to appropriately predict future outcomes may degrade over time due to limited historical patterns, extreme or unanticipated market movements, or customer behavior and liquidity, especially during severe market downturns or stress events (e.g., geopolitical or pandemic events). Consequently, our use of models and AI could result in inaccurate forecasts, ineffective risk management practices, inaccurate risk reporting and other negative or unexpected consequences.
AI may subject us to new or heightened legal, regulatory, ethical or other challenges, and a negative public opinion of AI could impede the acceptance of AI solutions. If the models or AI solutions that we or a third party create and use or the data inputs, formulas, or algorithms on which such models or AI solutions rely – or if the content, analyses or recommendations that the models or AI solutions produce are (or are perceived to be) deficient, inaccurate, biased, unethical or controversial – we could incur operational inefficiencies, competitive harm, legal liability, or brand or reputational harm. We could also incur other adverse impacts on our businesses and financial results. We may be liable if we were to violate applicable laws and regulations, third-party intellectual property, privacy or other rights, or contracts we have. Further, the use of models and AI solutions within products or services that we use or that are used by our third-party service providers may pose similar risks, and we have limited ability to control the manner in which third-party products are developed or maintained or the manner in which third-party services are provided.
The development and implementation of some of these models require us to make difficult, subjective and complex judgments. Our risk reporting and risk management, including our business decisions that are based on information gathered through models and AI, depend on the effectiveness of our models and AI. They also depend on our policies, programs, processes and practices governing how data, models and AI are acquired, validated, stored, protected, processed and analyzed, including our data aggregation and validation procedures, and any issues with the quality or effectiveness of the foregoing could have negative consequences.
While we continuously update our policies, programs, processes and risk management practices, many of our data management, modeling, AI, aggregation and implementation processes are manual. They may be subject to human error, data limitations, process delays or system failure. If any of our employees, contractors, third-party service providers or other third parties with which we do business use any third-party AI solutions in connection with our business, it may lead to the inadvertent or unauthorized disclosure or incorporation of our sensitive and confidential information, including personal information, into third-party systems or publicly available or third-party training sets, which may impact our ability to realize the benefit of our intellectual property or other proprietary rights in such information. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks; to produce accurate financial, regulatory and operational reporting; and to manage changing business needs. If our Framework is ineffective, we could suffer unexpected losses, which could materially adversely affect our results of operation or financial condition.
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Table of ContentsAny information we provide to the public or to our regulators based on incorrectly designed/implemented models or AI could be inaccurate or misleading. Some of the decisions that our regulators make could be adversely affected if their perception is that the quality of the data, models and AI used to generate the information is insufficient.
The regulation of AI is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful, emerging technologies. The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, privacy, data protection and data security, consumer protection, competition and equal opportunity laws and regulations. They are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations.
Various U.S. governmental and regulatory agencies continue to review AI. Several U.S. states and foreign jurisdictions are applying (or are considering applying) their platform moderation, privacy, data protection, and data security laws and regulations to AI. They are also considering general legal frameworks for AI. In particular, several states, including Colorado and California, have passed or are continuing to propose laws and regulations that govern various facets and uses of AI.
We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions. Furthermore, because AI technology itself is highly complex and rapidly developing, it is not possible to predict all of the legal, operational, competitive or technological risks that may arise from using AI.
Risks of external fraud exceeding our expectations due to larger, more sophisticated, or more frequent fraud attacks, failure to detect and respond to such attacks and/or the reduced capability to recover losses from those incidents. This could result in increased fraud loss, operational cost, customer dissatisfaction, reputational damage and/or constrained revenue growth for us.
We are subject to the risk of fraudulent activity perpetrated by bad actors or by our customers. Our customers may also fall victim to scams in which they authorize bad actors to take account actions on their behalf. The risk of fraud continues to be a persistent inherent risk for the financial services industry. Our risk of fraud continues to increase as third parties that handle confidential consumer information suffer security breaches, we expand our digital banking business and we introduce new products and features (including our acquisition of the Global Payment Network). Credit and debit card fraud, identity theft and electronic-transaction related crimes are prevalent, and perpetrators are growing ever more sophisticated. While we have fraud defenses, authentication tools and various other strategies designed to address such risks, there can be no assurance that losses will not exceed historical levels or our expectations.
There are also risks to our ability to recover fraud losses based on potential changes to fraud liability. Additionally, consumer activists and regulators have sought to expand financial institutions’ responsibility to hold customers harmless for transactions that they authorized on their accounts that are the result of scams.
Emerging generative AI capabilities, such as synthetic video, images and identity documents may introduce new risks, in the form of identity fraud and scams. Additionally, the growth of agentic commerce, in which autonomous AI agents initiate and execute transactions on behalf of users, may increase fraud losses as well as change circumstances when the merchant or issuer is liable for fraud losses.
Legal frameworks governing such autonomous agents remain nascent, with limited direct guidance, and the interplay between laws and regulations relating to, among other things, fraud, payments, privacy, data protection, data security and AI may create uncertainty around compliance obligations and potential liability exposure as more participants (including sellers, fintechs, AI developers and enablers) enter the agentic commerce ecosystem.
Our financial condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if fraudulent activity were to significantly increase. Furthermore, high-profile fraudulent activity could negatively impact our brand and reputation. In addition, significant increases in fraudulent activity could lead to regulatory intervention or other actions (such as mandatory card reissuance) and reputational and financial damage to our brands, which could negatively impact the use of our deposit accounts, cards and networks, any of which could have a material adverse effect on our business.Legal and Regulatory Risk
Compliance with new and existing domestic and foreign laws, regulations and regulatory expectations is costly and complex, and any significant changes may adversely affect our business.37Capital One Financial Corporation (COF)
Table of ContentsA wide array of laws and regulations, including banking, tax, consumer lending and payment services laws and regulations, apply to our business and these laws can be uncertain and evolving. We and our subsidiaries are also subject to supervision and examination by multiple regulators both in the U.S. and abroad, and the manner in which our regulators interpret applicable laws and regulations may affect how we comply with them.
The Company, including Discover’s business acquired in the Transaction, may be subject to increased scrutiny by, and/or may require additional regulatory compliance with, governmental authorities in connection with the Transaction as a result of an increase in the size, scope and complexity of the combined company’s business operations, which may have an adverse effect on our business, financial condition and results of operations. Also, if the Company were to become a Category II institution due to an increase in size or cross-jurisdictional activity, it would become subject to certain additional or enhanced regulatory requirements. See “ We may not be able to maintain adequate capital or liquidity levels or may become subject to revised capital or liquidity requirements, which could have a negative impact on our financial results and our ability to return capital to our stockholders. ” for additional information.
Failure to comply with these laws and regulations and effectively navigate this complex regulatory landscape, even if the failure is inadvertent, results from human error or reflects a difference in interpretation or conflicting legal requirements, could subject us to restrictions on our business activities, fines, criminal sanctions and other penalties and/or damage to our reputation with regulators, our customers or the public. Hiring, training and retaining qualified compliance and legal personnel, and establishing and maintaining risk management and compliance-related systems, infrastructure and processes, is difficult and may lead to increased expenses. These efforts and the associated costs could limit our ability to invest in other business opportunities. In addition, actions, behaviors or practices by us, our employees or representatives that are illegal, unethical or contrary to our core values could harm us, our stockholders or customers or damage the integrity of the financial markets and are subject to regulatory scrutiny across jurisdictions. Violations of law by other financial institutions may also result in increased regulatory scrutiny of our business.
Applicable laws and regulations may affect us disproportionately compared to our competitors or in an unforeseen manner. For example, we have a large number of customer accounts in our credit card and auto lending businesses and we have made the strategic choice to originate and service subprime credit card and auto loans, which typically have higher delinquencies and charge-offs than prime customer accounts. As a result, we have significant involvement with credit bureau reporting and the collection and recovery of delinquent and charged-off debt, primarily through customer communications, the filing of litigation against customers in default, the periodic sale of charged off debt and vehicle repossession. These and other consumer lending activities are subject to customer complaints and enhanced legal and regulatory scrutiny from regulators, courts and legislators. Any future changes to or legal liabilities resulting from our business practices in these areas, including our debt collection practices and the fees we charge, whether mandated by regulators, courts, legislators or otherwise, could have a material adverse impact on our financial condition.
The legislative, regulatory and supervisory environment is beyond our control, may change rapidly and unpredictably, and may negatively influence our revenue, costs, operations, transaction volumes, earnings, growth, liquidity and capital levels. There have been efforts to impose price controls and other impositions. Such changes, among others, could impact credit availability, affect our ability or willingness to provide certain products or services, necessitate changes to our business practices or materially reduce our revenues. Some laws and regulations may be subject to litigation or other challenges that delay implementation or result in modifications, rescissions or withdrawals, which impacts us. Furthermore, political and policy goals of elected and appointed officials may change over time, which could impact the rulemaking, supervision, examination and enforcement priorities of the Federal Banking Agencies. It is possible that expected changes in law, regulation and policy do not occur or are reversed subsequently, or the regulatory measures that are ultimately enacted deliver significant competitive advantages to financial services that are structured differently or serve different markets than us. For example, there may be future legislation or rulemaking in emerging regulatory areas, such as a more accommodative stance on novel financial services or new technologies, including those related to stablecoins. Adoption of new technologies, such as distributed ledger technologies, tokenization, cloud computing, AI and machine learning technologies, can present challenges in applying and relying on existing compliance systems.
Compliance expectations and expenditures have significantly increased over time for us, particularly as regulators have heightened their focus on the adequacy of controls to support business operations. We may have to make additional investments in risk management, compliance and other functions in response to enforcement actions, supervisory expectations and the integration of Discover into our Framework and corporate culture. We may face additional risks, including risks of supervisory and enforcement actions, if we are unable to align Discover’s risk and control culture and environment with the expectations of
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Table of Contentsour regulators. We may become subject to compliance and regulatory risks if new issues, including issues that may be more severe than we anticipated before the closing of the Transaction, are identified as part of the integration of Discover or otherwise relating to Discover’s activities. We may also face compliance and regulatory risks if we introduce new or changed products and services or enter into new business arrangements with third-party service providers, alternative payment providers or other industry participants as a result of the Transaction. Heightened regulatory expectations and increased volume of regulatory changes may generate additional expenses or require significant time and resources to maintain compliance.
Certain laws and regulations, and any interpretations and applications with respect thereto, are generally intended to protect consumers, borrowers, depositors, the DIF, the U.S. banking and financial system, and financial markets as a whole, but not stockholders. Our success depends on our ability to maintain compliance with both existing and new laws and regulations. For a description of the material laws and regulations, including those related to the consumer lending business, to which we are subject, see “Part I—Item 1. Business—Supervision and Regulation.”
Our required compliance with applicable laws and regulations related to privacy, data protection and data security, in addition to compliance with our own privacy policies and contractual obligations to third parties, may increase our costs, reduce our revenue, increase our legal exposure and limit our ability to pursue business opportunities.
We are subject to a variety of continuously evolving and developing laws and regulations in the United States at the federal, state and local level regarding privacy, data protection and data security, including those related to the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information. These laws and regulations, and similar laws and regulations in other jurisdictions, impose strict requirements regarding the collection, storage, handling, use, disclosure, transfer, security and other processing of personal information, which may have adverse consequences, including significant compliance costs and severe monetary penalties for non-compliance. For further discussion of applicable privacy, data protection and data security laws and regulations, see “Part I—Item 1. Business—Supervision and Regulation” under the headings “Privacy, Data Protection and Data Security” and “Regulation by Authorities Outside the United States.” Significant uncertainty exists as privacy, data protection and data security laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. In connection with the integration of Discover, we expect to continue to integrate Discover data, including personal information, into our systems and networks, which may subject us to increased regulatory and compliance risks, including at the international level.
Further, we make public statements about our use, collection, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about privacy, data protection and data security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. We have been subject to these types of claims in the past, and there can be no assurance that we will not be subject to these types of claims in the future. Additional risks could arise in connection with any failure or perceived failure by us, our service providers or other third parties with which we do business to provide adequate disclosure or transparency to individuals, including our customers, about the personal information collected from them and its use, to receive, document or honor the privacy preferences expressed by individuals, to protect personal information from unauthorized disclosure, misuse or mishandling or to maintain proper training on privacy practices for all employees or third parties who have access to personal information in our possession or control. Furthermore, the increased risk of inadvertent disclosure of confidential information or personal data in connection with the utilization of AI technologies may result in stronger regulatory scrutiny, leading to legal and regulatory investigations and enforcement actions that may negatively affect our business, even if unfounded.
Our efforts to comply with the GLBA, the FCRA, the CCPA, the PIPEDA and provincial privacy laws, EU GDPR, U.K. GDPR and other privacy, data protection and data security laws and regulations, as well as our posted privacy policies, and related contractual obligations to third parties, entail substantial expenses, may divert resources from other initiatives and projects, and could limit the services we are able to offer. Furthermore, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy, data protection and data security violations continue to increase. The enactment of more restrictive laws or regulations, or future enforcement actions, litigation or investigations, could impact us through increased costs or restrictions on our business, and any noncompliance or perceived noncompliance could result in monetary or other penalties, harm to our reputation, distraction to our management and technical personnel and significant legal liability.Our businesses are subject to the risk of increased litigation, government investigations and regulatory enforcement.39
Capital One Financial Corporation (COF)
Table of ContentsOur businesses are subject to increased litigation, government investigations and other regulatory enforcement risks as a result of a number of factors and from various sources, including the highly regulated nature of the financial services industry, the focus of state and federal prosecutors on banks and the financial services industry and the structure of the credit card industry.Given the inherent uncertainties involved in litigation, government investigations and regulatory enforcement decisions, and the very large or indeterminate damages sought in some matters asserted against us, there can be significant uncertainty as to the ultimate liability we may incur from these kinds of matters. The finding, or even the assertion, of substantial legal liability against us could have a material adverse effect on our business and financial condition and could cause significant reputational harm to us, which could seriously harm our business.
In addition, financial institutions, such as ourselves, face significant regulatory scrutiny, which can lead to public enforcement actions or nonpublic supervisory actions. We and our subsidiaries are subject to comprehensive regulation and periodic examination by, among other regulatory bodies, the Federal Banking Agencies, the SEC, the CFTC and the CFPB. We have been subject to enforcement actions by many of these and other regulators and may continue to be involved in such actions, including governmental inquiries, investigations and enforcement proceedings.
In December 2025, the OCC issued a report of preliminary findings of its ongoing supervisory review, in accordance with Executive Order 14331 “Guaranteeing Fair Banking for All Americans,” of the nine largest OCC-regulated banks, including the Bank, to determine whether those banks may have debanked or discriminated against customers or potential customers on the basis of their political or religious beliefs or lawful business activities. In the report, the OCC states that its review is ongoing and, once its supervisory review has concluded, it intends to hold the banks reviewed accountable for any unlawful debanking activities, including by making referrals to the Attorney General.
Over the last several years, federal and state regulators have focused on risk management, compliance with anti-money laundering (“AML”) and sanctions laws, privacy, data protection and data security, use of service providers, fair access and lending, unfair or deceptive practices, and other consumer protection issues and new technologies. Regulators have indicated the potential for escalating consequences for banks that do not timely resolve open issues or have repeat issues. Regulatory scrutiny is expected to continue in these areas, including as a result of implementation of the AML Act of 2020.
We expect that regulators and governmental enforcement bodies will continue taking public enforcement actions against financial institutions in addition to addressing supervisory concerns through nonpublic supervisory actions or findings, which could involve restrictions on our activities, or our ability to make acquisitions or otherwise expand our business, among other limitations that could adversely affect our business. In addition, a violation of law or regulation by another financial institution is likely to give rise to supervisory review or an investigation by regulators and other governmental agencies of the same or similar practices by us. Furthermore, a single event may give rise to numerous and overlapping investigations and proceedings. These and other initiatives from governmental authorities and officials may subject us to further customer remuneration, judgments, settlements, fines or penalties, or cause us to restructure our operations and activities or to cease offering certain products or services, all of which could harm our reputation or lead to higher operational costs. Litigation, government investigations and other regulatory actions could generally subject us to significant fines, increased expenses, restrictions on our activities, including product offerings, and damage to our reputation and our brand, and could adversely affect our business, financial condition and results of operations. For additional information regarding legal and regulatory proceedings to which we are subject, see “Part II—Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”
As a result of the Transaction, we have assumed the contingencies and liabilities of Discover, for which we have incurred and may continue to incur financial risk, compliance obligations, litigation risk, or reputational risk, including as a result of assuming ongoing litigation disputes, claims, government agency investigations and enforcement actions and other proceedings associated with Discover’s actions prior to the Transaction. For additional information regarding legal and regulatory proceedings in connection with the Transaction, refer to “Part II—Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”
We continue to face significant uncertainty regarding the contingencies and liabilities we have assumed from Discover, and any significant or unanticipated liability we may incur from these matters may adversely impact our business, financial condition and results of operations.
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Table of ContentsOther Business Risks
We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations.We operate in a highly competitive environment across all of our lines of business, whether in making loans, attracting deposits or in the global payments industry, and we expect competitive conditions to continue to intensify with respect to most of our products, particularly in our card, payment network and consumer banking businesses. We compete on the basis of the rates we pay on deposits and the rates and other terms we charge on the loans we originate or purchase, as well as the quality and range of our customer service, products, innovation and experience, and, with respect to our payment network businesses, the strength, reach, pricing and capabilities of our network offerings to merchants, acquirers and issuers. This competitive environment is a result of changes in technology, product delivery systems and regulation, as well as the emergence of new or significantly larger financial services providers, all of which may affect our customers’ expectations and demands. In addition to offering competitive products and services, we invest in and conduct marketing campaigns to attract and inform customers. If our marketing campaigns are unsuccessful, it may adversely impact our ability to attract new customers and grow our business.
Some of our competitors, including new and emerging competitors in the digital and mobile payments space and other financial technology providers and payment networks, are not subject to the same regulatory requirements or scrutiny to which we are subject, which also could place us at a competitive disadvantage, in particular in the development of new technology platforms or the ability to rapidly innovate. We compete with many forms of payments offered by both bank and non-bank providers, including a variety of new and evolving alternative payment mechanisms, systems and products, such as aggregators and web-based and wireless payment platforms or technologies, digital currencies or cryptocurrencies (including stablecoins and tokenized deposits), prepaid systems and payment services targeting users of social networks, communications platforms and online gaming. If we are unable to continue to keep pace with innovation and fail to reflect such technology in our payments offerings, do not effectively market our products and services, are unable to deliver them effectively and securely to our customers or are prohibited from or unwilling to enter emerging areas of competition, our business and results of operations could be adversely affected. Also, our competitors or other third parties may incorporate emerging technologies, such as AI, into their products or services more quickly or more successfully than we do, which could impair our ability to compete effectively. For example, our competitors may be more timely or successful in developing or integrating AI technologies to increase their productivity and reduce their costs or to provide better transaction execution or improved products or services to clients. In addition, government actions or initiatives by the federal and state governmental authorities, including the Federal Banking Agencies, may also provide competitors with increased opportunities to derive competitive advantages and may create new competitors. These actions or initiatives may include more accommodative positions on the processing and approval of traditional bank charters and deposit insurance, expanded access to the banking and payments systems through the approval of competitors, including competitors with novel business models, to hold specialized charters, or more accommodative positions on novel activities performed by banks or non-banks. For example, the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (GENIUS Act) provides a legal framework for stablecoins to be issued in the United States, which may allow new and existing competitors to compete for funds that may have otherwise been deposited with banks, such as the Bank.Some of our competitors are substantially larger than we are, which may give those competitors advantages, including a more diversified product and customer base, the ability to reach more customers and potential customers, operational efficiencies, broad-based local distribution capabilities, lower-cost funding and larger existing branch networks. Many of our competitors are also focusing on cross-selling their products and developing new products or technologies, which could affect our ability to maintain or grow existing customer relationships or require us to offer lower interest rates or fees on our lending products or higher interest rates on deposits. Competition for loans could result in origination of fewer loans, earning less on our loans or an increase in loans that perform below expectations.We face strong and increasing competition in the direct banking market. Aggressive pricing throughout the industry may adversely affect the retention of existing balances and the cost-efficient acquisition of new deposit funds and may affect our growth and profitability. Customers could also close their online accounts or reduce balances or deposits in favor of products and services offered by competitors for other reasons. These shifts, which could be rapid, could result from general dissatisfaction with our products or services, including concerns over pricing, online security or our reputation. The potential consequences of this competitive environment are exacerbated by the flexibility of direct banking and the financial and technological sophistication of our online customer base.
The increased pressure on transaction fees associated with card payments due to competition could create additional risk to growth for both our card issuing businesses and the Global Payment Network. This, in turn, could adversely affect the revenue
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Table of Contentsfor our network and card issuing businesses, as well as our ability to attract and retain Network Partners who may seek alternatives from both traditional and non-traditional payment service providers, which may limit our ability to maintain or grow revenues from the Global Payment Network. In addition, competitors’ settlements with merchants and related actions, including pricing pressures and/or surcharging, could negatively impact our business practices. Competitor actions related to the structure of merchant and acquirer fees and merchant and acquirer transaction routing strategies may adversely affect our recently acquired PULSE Network’s business practices, network transaction volume, revenue and prospects for future growth and entry into new product markets. Additionally, in our credit card business, competition for rewards customers may result in higher rewards expenses, or we may fail to attract new customers or retain existing rewards customers due to increasing competition for these consumers. The market for key business partners, especially in the credit card business, is very competitive, and we may not be able to grow or maintain these partner relationships or assure that these relationships will be profitable or valued by our customers. Additionally, partners themselves may face changes in their business, including market factors and ownership changes, that could impact the partnership, or they may make changes to the products and services they offer, which may lower the value of our products, such as the co-branded cards we issue to our customers. We face the risk that we could lose partner relationships, even after we have invested significant resources into acquiring and developing the relationships. The loss of any key business partner could have a negative impact on our results of operations, including lower returns, excess operating expense and excess funding capacity.
We depend on our partners to effectively promote our co-brand and private label credit card products and integrate the use of our credit cards into their retail operations. The failure by our partners to effectively promote and support our products, as well as changes they may make in their business models, could adversely affect card usage and our ability to achieve the growth and profitability objectives of our partnerships. In addition, if our partners do not adhere to the terms of our program agreements and standards, or otherwise diminish the value of our brand, we may suffer reputational damage and customers may be less likely to use our products.
Some of our competitors have developed, or may develop, substantially greater financial and other resources than we have, may offer richer value propositions or a wider range of programs and services than we offer, or may use more effective advertising, marketing or cross-selling strategies to acquire and retain more customers, capture a greater share of spending and borrowings, attain and develop more attractive co-brand card programs, obtain more favorable terms with merchants and maintain greater merchant acceptance than we have. Competition may also intensify as participants in the payments industry merge or enter into joint ventures or other business combinations that compete with our products and services. We may not be able to compete effectively against these threats or respond or adapt to changes in consumer spending habits as effectively as our competitors.In such a competitive environment, we may lose entire accounts or may lose account balances to competing firms, or we may find it more costly to maintain our existing customer base. Customer attrition from any or all of our lending products, together with any lowering of interest rates or fees that we might implement to retain customers, could reduce our revenues and therefore our earnings. Similarly, unexpected customer attrition from our deposit products, in addition to an increase in rates or services that we may offer to retain deposits, may increase our expenses and therefore reduce our earnings.A change in market preference towards other operators of payment networks and alternative payment providers could result in reduced transaction volume, limited merchant acceptance of our cards and limited issuance of cards on our networks by third parties, and in turn may impact our revenue margins.
As a result of our recent acquisition of the Global Payment Network, we now face substantial and increasingly intense competition in the payments industry, both from traditional players and new, emerging alternative payment providers. For example, we now compete with other payment networks to attract Network Partners to issue credit and debit cards and other card products on the Global Payment Network. In addition, increased competition with certain network operators, such as Visa and Mastercard, could affect our existing partnerships and business relationships with these networks, which have historically played a significant role in facilitating our card-issuing and transaction processing services. Competition with other operators of payment networks is generally based on issuer fees, fees paid to networks (including switch fees), merchant acceptance and functionality, technological capabilities and other economic terms. Competition is also based on customer perception of service quality, merchant acceptance, brand image, reputation and market share. Further, we are now facing ongoing competition from emerging alternative payment providers who may create innovative networks or other arrangements with our primary competitors, large merchants or other industry participants, or provide stablecoins, other digital currencies or tokenized deposits, which could adversely impact our costs, transaction volume and ability to grow our business. In addition, we, along with our competitors, clients, network participants and others, are developing or participating in alternative payment systems or products such as mobile and ecommerce payment services, P2P payment services, real-time and faster payment initiatives, and
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Table of Contentspayment services that could reduce our role in, or otherwise disintermediate us from, transaction processing or the value-added services we provide to support such processing.
Many of our payment network and alternative payment provider competitors are well established and have significant financial resources and scale. These competitors have provided financial incentives to card issuers, such as large cash signing bonuses for new programs and funding for, and sponsorship of, marketing programs and other bonuses.
We cannot be certain that we will be able to continue to increase international merchant acceptance, as well as the perception of merchant acceptance of the Global Payment Network, and we cannot be certain that we will achieve global market parity with Visa or Mastercard. In addition, Visa and Mastercard have entered into long-term arrangements with financial institutions, some of which are exclusive, or nearly exclusive, which has the effect of limiting our ability to conduct material amounts of business with these institutions. Moreover, American Express is also a strong competitor with international merchant acceptance, competitive transaction fees and an upscale brand image. Internationally, American Express competes in the same market segments as Diners Club. We may face challenges in increasing international merchant acceptance on our networks, particularly if third parties that we rely on to issue Diners Club cards, increase card acceptance and market our brands, do not perform to our expectations. In such a competitive environment, any disruption to our existing relationships with Visa or Mastercard or our ability to grow the Global Payment Network could affect our ability to remain competitive by adjusting issuer fees and incentives, and we may be unable to offer adequate pricing to Network Partners while maintaining sufficient net revenues.
In addition, if we are unable to maintain sufficient network functionality to be competitive with other networks, or if our competitors develop better data security solutions or more innovative products and services than we do, our ability to retain and attract Network Partners and maintain or increase the revenues generated by the Global Payment Network or our proprietary card-issuing businesses could be materially and adversely affected. Our competitive position could also be affected if we are unable to deploy, in a cost-effective and competitive manner, technology such as generative AI. Additionally, competitors may develop ancillary products, which as a consequence of the competitors’ size and scale, we may be forced to use. Such developments could adversely affect our business, as those competitors may be better positioned to absorb the costs of such data security solutions over higher volumes or a larger customer base.
Our recently acquired network business depends upon relationships with card issuers, merchant acquirers, alternative payment providers and licensees, many of whom are financial institutions. The economic and regulatory environment and increased competition and innovation in the payments space could decrease our opportunities for new business and may result in the termination of existing business relationships. In addition, if as a result of this environment, financial institutions have decreased interest in engaging in new card issuance opportunities or expanding existing card issuance relationships, that would inhibit our ability to grow our network business. We will face substantial and intense competition in the payments industry, which may impact our revenue margins, transaction volume and business strategies.
If we are unsuccessful in creating and maintaining a strong base of network licensees and achieving meaningful global card acceptance, we may be unable to achieve long-term success in our recently acquired international network business.
The success of our international network business, and our ability to grow global card acceptance for the Global Payment Network, depends on the cooperation, support and continued operation of the network licensees that issue Diners Club cards and maintain associated merchant acceptance relationships, as well as the partners that participate in our network alliances with us; these participants issue cards that operate on our network and support merchant acceptance in their respective markets.
Outside of the United States, we do not issue cards that are accepted on our networks, and we do not determine the terms and conditions of cards issued by our international network participants, whether they are Diners Club participants or work with us through a network alliance. The level of acceptance in any given market reflects a combination of factors, including the number and competitiveness of cards issued directly by us and by network participants, whether merchants in a given market view acceptance of our cards as commercially attractive based on perceived customer demand and competitive pricing and terms, and the commitment, investment and effectiveness of those participants in promoting card usage and expanding or sustaining merchant acceptance.
If we are unable to continue our relationships with network participants, or if those participants are unable to continue their relationships with merchants or otherwise effectively support merchant acceptance, our ability to maintain or increase revenues and remain competitive would be adversely affected due to the potential deterioration in our card issuers’ relationships with their cardholders, which would in turn reduce demand and lead to declines in transaction volume or acceptance levels. If one or more network participants were to experience a significant impairment of their business or cease doing business for economic,
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Table of Contentsregulatory or other reasons, we could face business interruption in affected markets, including loss of volume, global card acceptance and revenue and exposure to potential reputational risk. If such conditions arise in the future, we may need to deploy resources and incur expenses in order to sustain network acceptance and support network functionality. Additionally, interruption of network licensee relationships could have an adverse effect on the international acceptance of our credit cards when they are used on our networks.
Achieving global card acceptance would allow our customers, including third-party issuers leveraging the network, to use their cards at merchant and ATM locations around the world. The long-term success of our international network business depends upon achieving meaningful global card acceptance, which may include higher overall costs or longer time frames than anticipated.
Our business, financial condition and results of operations may be adversely affected by legislation, regulation and merchants’ efforts to reduce the fees (including the interchange component) charged by credit and debit card networks and acquirers to facilitate card transactions.
As an issuer of credit and debit cards on four-party networks, the Bank earns interchange fees, which are included in the charges to merchants by their acquirers when customers use our cards. Interchange fees are the amounts established by credit and debit card networks for the purpose of compensating unaffiliated debit and credit card issuers for their role in facilitating card transactions and are a meaningful source of revenue for our credit and debit card businesses. Interchange fees are a revenue source that, for example, covers issuers’ costs associated with credit and debit card payments, funds rewards programs, helps fund anti-fraud measures, management and dispute costs and funds competition and innovation. Interchange fees continue to be the subject of significant and intense global legislative, regulatory and legal focus, and the resulting legislation, regulation and decisions may have a material adverse impact on our overall business, financial condition and results of operations. For cards issued on the Global Payment Network, a three-party network, the Bank earns an issuer rate instead of interchange fees.
Legislative and regulatory bodies in a number of countries have sought, or are currently seeking, to reduce interchange fees through legislation, competition-related regulatory proceedings, voluntary agreements, central bank regulation and/or litigation. In the United States, interchange reimbursement rates for credit card transactions are set by credit card networks such as Mastercard and Visa.
In the United States, the Federal Reserve’s Regulation II places limits on the interchange fees that issuers may charge, and requires additional routing requirements for, debit cards issued on four-party networks, such as the remaining debit cards issued by the Bank on networks other than the Global Payment Network. In October 2023, the Federal Reserve released a notice of proposed rulemaking to revise Regulation II to further reduce the cap on interchange fees that debit card issuers covered by Regulation II can receive for covered debit card transactions. In August 2025, a North Dakota district court ruled that the Federal Reserve exceeded its statutory authority when it originally promulgated Regulation II in 2011. As a result, the court vacated Regulation II, although the court stayed the vacatur order to allow time for the resolution of an appeal and allowed the Federal Reserve’s 2023 proposed rule to go into effect if it becomes finalized. Conversely, a district court in Kentucky ruled that the Federal Reserve acted in accordance with its statutory authority when it promulgated Regulation II and upheld the regulation. Any changes to Regulation II and the debit interchange regulatory scheme, including as a result of the ultimate resolution of these district court decisions, which remains unknown, may result in lower debit card interchange fees for cards issued on four-party networks. Such lower fees could, in turn, result in market pressures that reduce the discount rate charged for debit cards issued by the Bank on the Global Payment Network. For more information on Regulation II and the Federal Reserve’s 2023 proposed rule, please see “Part I—Item 1. Business—Supervision and Regulation.” State legislatures and regulatory agencies may also seek to enact legislation and regulation to limit fees or discount rates charged by networks.
Lowering interchange fees also remains an area of international governmental attention by certain parties. In some jurisdictions, such as Canada and certain countries in Europe, including the U.K., interchange fees and related practices are subject to regulatory activity, including in some cases, imposing caps on permissible interchange fees. Our international card businesses have been impacted by these restrictions. For example, in the U.K., interchange fees are capped for both consumer credit and debit card transactions. In addition, in Canada, Visa and Mastercard payment networks have entered into voluntary agreements with the Department of Finance Canada to maintain an agreed-upon average interchange rate. In addition to this legislative and regulatory activity, merchants are also seeking avenues to reduce interchange fees. Merchants and their trade groups have filed numerous lawsuits against payment card networks and banks that issue cards on those networks, claiming that their practices toward merchants, including interchange fees, violate federal antitrust laws. In 2005, a number of entities filed antitrust lawsuits against Mastercard and Visa and several member banks, including our subsidiaries and us, alleging among other things, that the
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defendants conspired to fix the level of interchange fees. For additional information about the lawsuits, see “Part II—Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.” .
In addition, some major retailers or industry sectors could independently negotiate lower interchange fees with Mastercard and Visa. This, as well as any ultimate resolution on the settlement with Mastercard and Visa, could in turn result in lower interchange fees or discount rates for us when our cardholders undertake purchase transactions with these retailers, either directly with respect to any debit or credit cards issued by the Bank on Mastercard’s and Visa’s networks, or indirectly as a result of market pressures with respect to debit or credit cards issued by the Bank on the Global Payment Network. Merchants also continue to lobby Congress aggressively for legislation that would require additional routing requirements for credit cards that are issued on four-party networks, like Visa or Mastercard, which could create a downward pressure on interchange fees should their efforts be successful. Retailers may continue to bring legal proceedings against us or other credit card and debit card issuers and networks in the future.
Beyond pursuing legislation, regulation and litigation, merchants may also promote forms of payment with lower fees, as noted above, or seek to impose surcharges or discounts at the point of sale for use of credit or debit cards. If merchants increasingly impose surcharges or other point of sale pricing strategies in response to transaction fees, card usage and transaction volumes could decline, which could adversely affect our revenues and results of operations. New payment systems, particularly mobile-based payment technologies and digital currencies and cryptocurrencies (including stablecoins), could also gain widespread adoption and lead to issuer transaction fees or the displacement of credit or debit cards as a payment method.
The heightened focus by legislative and regulatory bodies on the fees charged by credit and debit card networks, including on prepaid cards, and the ability of certain merchants to successfully pursue litigation, negotiate discounts to interchange fees or discount rates with payment networks or develop alternative payment systems could result in a loss of income from interchange fees. Changes to the terms or implementation of Regulation II or the adoption of other laws and regulations that impose limitations on the fees that can be charged by issuers or networks on debit or credit card transactions or require merchants to be provided an alternative network for transaction routing could have an adverse effect on our business, financial condition and results of operations. For example, if a change in law or regulation results in debit card transactions on three-party networks, such as debit cards issued by the Bank on the Global Payment Network being subject to the Regulation II cap on interchange fees, it could result in the Company not recognizing a significant majority of the network revenue synergies that the Company anticipated to be realized in connection with the Transaction. Additionally, the development of alternative payment systems or exclusivity arrangements among merchants and their debit card networks could result in loss of fee income earned by the Global Payment Network. Any resulting loss in income to us could have a material adverse effect on our business, financial condition and results of operations.
A reduction in the number of large merchants that accept cards on our recently acquired Discover Network or PULSE Network or in the rates they pay could materially adversely affect our business, financial condition, results of operations and cash flows.
The largest merchants participating in our recently acquired Discover Network or PULSE Network could seek to negotiate different pricing or other financial incentives by conditioning their continued participation on a change in the terms of their economic participation. Loss of acceptance at these merchants would decrease transaction volume, negatively impact our recently acquired brand and could cause customer attrition. In addition, some of the merchants on these networks, primarily small- and mid-size merchants, are not contractually committed to us for any period of time and may cease to participate in our Discover Network and PULSE Network at any time on short notice.
Actual or perceived limitations on acceptance of credit cards issued on the Discover Network or debit cards issued on the PULSE Network could adversely affect the use of, or the attractiveness to prospective customers of, our credit cards that rely on the Discover Network. Also, we may have difficulty attracting and retaining Network Partners if we are unable to add or retain acquirers or merchants who accept cards issued on the Discover or PULSE Networks. As a result of these factors, a reduction in the number of our merchants or the rates they pay could materially adversely affect our business, financial condition, results of operations and cash flows.
Defaults or risks from bankruptcies, liquidations, restructurings, consolidations and outages by our network participants may adversely affect our business, financial condition, cash flows and results of operations.
As the operator of the Global Payment Network, as an issuer and as a merchant acquirer, we face credit risk related to transactions on the Global Payment Network, including bankruptcies, liquidations, insolvencies, financial distress,
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restructurings, consolidations, operational outages, cybersecurity incidents and other similar events that may occur in any industry. For example, we are contingently liable for certain disputed credit card sales transactions that arise between customers and merchants. If a dispute is resolved in the customer’s favor, we will cause a credit or refund of the amount to be issued to the customer and charge back the transaction to the merchant or merchant acquirer. If we are unable to collect this amount from the merchant or merchant acquirer, we will bear the loss for the amount credited or refunded to the customer. Where the purchased product or service is not provided until some later date following the purchase, such as an airline ticket, the likelihood of potential liability increases.
If we are not able to invest successfully in and introduce digital and other technological developments across all our businesses, our financial performance may suffer.
Our industry is subject to rapid and significant technological changes, including due to the increasing development and use of AI, and our ability to meet our customers’ needs and expectations is key to our ability to grow revenue and earnings. We expect digital technologies to continue to have a significant impact on banking over time. Consumers expect robust digital experiences from their financial services providers. The ability for customers to access their accounts and conduct financial transactions using digital technology, including mobile applications, is an important aspect of the financial services industry, and financial institutions are rapidly introducing new digital and other technology-driven products and services that aim to offer a better customer experience and to reduce costs. We continue to invest in digital technology designed to attract new customers, facilitate the ability of existing customers to conduct financial transactions and enhance the customer experience related to our products and services.
Our continued success depends, in part, upon our ability to assess and address the needs of our customers by using digital technology to provide products and services that meet their expectations. The development and launch of new digital products and services depends in large part on our ability to invest in and build the technology platforms that can enable them, in a cost-effective and timely manner. We expect that new technologies in the payments industry will continue to emerge, and these new technologies may be superior to our existing technology. See “ We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations ” and “ We face risks related to our operational, technological and organizational infrastructure . ”
Furthermore, any new technology could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business, new products or services and/or new technologies could have a material adverse effect on our business, financial condition and results of operations.
Some of our competitors are substantially larger than we are, which may allow those competitors to invest more money into their technology infrastructure and digital innovation than we do. In addition, smaller competitors may experience lower cost structures and different regulatory requirements and scrutiny than we do, which may allow them to innovate more rapidly than we can. See “ We face intense competition in all of our markets, which could have a material adverse effect on our business and results of operations .” Further, our success depends on our ability to attract and retain strong digital and technology leaders, engineers and other specialized personnel. The competition is intense, and the compensation costs continue to increase for such talent. If we are unable to attract and retain digital and technology talent, our ability to offer digital products and services and build the necessary technology infrastructure could be negatively affected, which could negatively impact our business and financial results. A failure to maintain or enhance our competitive position with respect to digital products and services, whether because we fail to anticipate customer expectations or because our technological developments fail to perform as desired or are not implemented in a timely or successful manner, could negatively impact our business and financial results.We may fail to realize the anticipated benefits of our mergers, acquisitions and strategic partnerships.
We engage in merger and acquisition activity and enter into strategic partnerships from time to time. We continue to evaluate and anticipate engaging in, among other merger and acquisition activity, additional strategic partnerships, selected acquisitions of financial institutions, and acquisitions or divestitures of other businesses or assets, including credit card and other loan portfolios. We may not be able to identify and secure future acquisition targets or dispositions on terms and conditions that are acceptable to us, or successfully complete and integrate the businesses within the anticipated time frame and achieve the anticipated benefits of proposed mergers, acquisitions, dispositions and strategic partnerships, which could impair our growth.Any merger, acquisition, disposition or strategic partnership we undertake, including the Transaction, entails certain risks, which may materially and adversely affect our results of operations. If we experience greater than anticipated costs to integrate
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acquired businesses into our existing operations, or are not able to achieve the anticipated benefits of any merger, acquisition or strategic partnership, including cost savings and other synergies, our business could be negatively affected. In addition, it is possible that the ongoing integration processes could result in the loss of key employees, errors or delays in systems implementation, exposure to cybersecurity risks associated with acquired businesses, exposure to additional regulatory oversight, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with partners, clients, customers, depositors and employees or to achieve the anticipated benefits of any merger, acquisition or strategic partnership. Integration efforts also may divert management attention and resources. These integration matters may have an adverse effect on us during any transition period. Moreover, it is possible that we may not realize the anticipated benefits of a given merger, acquisition or strategic partnership (either strategically or financially), even after spending substantial time and money on such a transaction, and we may ultimately decide to divest our interest or otherwise terminate the transaction.In addition, we may face the following risks in connection with any merger, acquisition or strategic partnership:• New Businesses and Geographic or Other Markets : Our merger, acquisition or strategic partnership activity may involve our entry into new businesses or new geographic areas or markets in the U.S. or internationally that present risks resulting from our relative inexperience in these new businesses, localities or markets. These new businesses, localities or markets may change the overall character of our consolidated portfolio of businesses and alter our exposure to economic and other external factors. We also face the risk that we will not be successful in these new businesses, localities or markets.• Identification and Assessment of Merger and Acquisition Targets and Deployment of Acquired Assets: We may not be able to identify, acquire or partner with suitable targets. Further, our ability to achieve the anticipated benefits of any merger, acquisition or strategic partnership will depend on our ability to assess the asset quality, risks and value of the particular assets or institutions we partner with, merge with or acquire. We may be unable to profitably deploy any assets we acquire.
• Accuracy of Assumptions: In connection with any merger, acquisition or strategic partnership, we may make certain assumptions relating to the proposed merger, acquisition or strategic partnership that may be, or may prove to be, inaccurate, including as a result of the failure to anticipate the costs, timeline or ability to realize the expected benefits of any merger, acquisition or strategic partnership. The inaccuracy of any assumptions we may make could result in unanticipated consequences that could have a material adverse effect on our results of operations or financial condition.• Target-Specific Risk: Assets and companies that we acquire, or companies that we enter into strategic partnerships with, will have their own risks that are specific to a particular asset or company. These risks include, but are not limited to, particular or specific litigation, regulatory, accounting, operational, reputational and industry risks, any of which could have a material adverse effect on our results of operations or financial condition. For example, we may face challenges associated with integrating other companies due to differences in corporate culture, compliance systems or standards of conduct. Indemnification rights, if any, may be insufficient to compensate us for any losses or damages resulting from such risks. In addition to regulatory approvals discussed below, certain of our merger, acquisition or partnership activity may require third-party consents in order for us to fully realize the anticipated benefits of any such transaction.
• Conditions to Regulatory Approval: We may be required to obtain various governmental and regulatory approvals to consummate certain acquisitions. We cannot be certain whether, when or on what terms and conditions, such approvals may be granted. Consequently, we may not obtain governmental or regulatory approval for a proposed acquisition on acceptable terms or at all, in which case we would not be able to complete the acquisition despite investing resources in pursuing it.
For additional risks related to the Transaction, see “Risks Relating to the Transaction and Integration of Discover.”
Reputational risk and social factors may impact our results and damage our brand.
Our ability to attract and retain customers is highly dependent upon the perceptions of consumer and commercial borrowers and deposit holders and other external perceptions of our products, services, business practices, workplace culture, compliance practices or our financial health. Capital One’s brands, including Discover, PULSE and Diners Club, are some of our most
47Capital One Financial Corporation (COF)
Table of Contentsimportant assets. Maintaining and enhancing our brands depends largely on our ability to continue to provide high-quality products and services. Adverse perceptions regarding our reputation in the consumer, commercial and funding markets could lead to difficulties in generating, maintaining and financing accounts. In particular, negative public perceptions regarding our reputation, including negative perceptions regarding our ability to maintain the security of our technology systems and protect customer data, could lead to decreases in the levels of deposits that current and potential consumer and commercial customers choose to maintain with us. In addition, we operate across a number of different businesses, and negative publicity with respect to one business could have negative consequences across all of our businesses. Negative perceptions may also significantly increase the costs of attracting and retaining customers, increase susceptibility to litigation and enforcement actions or other adverse effects on our business, results of operations and financial condition.
Negative public opinion or damage to our brand could also result from actual or alleged conduct in any number of activities or circumstances, including lending and payment network practices, regulatory compliance, cyber-attacks or other security incidents, accounting issues, corporate governance and sales and marketing, and from actions taken by regulators or other persons in response to such conduct. Such conduct could fall short of our customers’ and the public’s heightened expectations of companies of our size with rigorous privacy, data protection, data security and compliance practices, and could further harm our reputation. We strategically license our trademarks to business partners and network participants, some of whom have contractual obligations to promote and develop our brands. In addition, our co-brand and private label credit card partners or other third parties with whom we have important relationships may take actions over which we have limited control that could negatively impact perceptions about us or the financial services industry.
The proliferation of social media and its rapid and broad dissemination of information (or misinformation and disinformation) may increase the likelihood that negative public opinion from any of the actual or alleged events discussed above may trigger a loss of trust or confidence on the part of clients, counterparties, shareholders, investors, debt holders, market analysts or other relevant parties, including regulators, and could impact our reputation and business.In addition, a variety of economic or social factors may cause changes in borrowing activity, including credit card use, payment patterns and the rate of defaults by account holders and borrowers domestically and internationally. These economic and social factors include changes in consumer confidence levels, the public’s perception regarding the banking industry and consumer debt, including credit card use, and changing attitudes about the stigma of bankruptcy. If consumers develop or maintain negative attitudes about incurring debt, or consumption trends decline or if we fail to maintain and enhance our brand, or we incur significant expenses to do so, our reputation and business and financial results could be materially and negatively affected.Environmental, social and corporate governance policies may create competing stakeholder, legislative and regulatory scrutiny that may impact our reputation or operations. As a result, we may not be able to meet the full range of expectations and demands of all our stakeholders. Any failure to meet our stakeholders full range of expectations and demands could result in reputational damage, a loss of customer and investor confidence, increased legal and operational risks and other adverse effects on our results of operations and prospects. For example, as part of our acquisition of Discover, we have committed to a $265 billion Community Benefits Plan (“CBP”) over five years. Failure to adequately deliver on, or material revisions to, this commitment, whether due to financial constraints, operational inefficiencies or external economic factors, may lead to public criticism, which may expose us to significant reputational risks. Also, some stakeholders may object to the scope or nature of the CBP initiative, which could give rise to negative responses by governmental actors (e.g., litigation, retaliatory legislation) or by customers and advocates (e.g., boycotts) that could adversely affect our brand value.If we are not able to protect our intellectual property rights, or we violate third-party intellectual property rights, our revenue and profitability could be negatively affected.We rely on a variety of measures to protect and enhance our intellectual property rights, including copyrights, trademarks, trade secrets, patents, licenses and certain restrictions on disclosure, solicitation and competition. We also undertake other measures to control access to and distribution of our other proprietary and confidential information. These measures may not be successful in protecting or enforcing our rights in every jurisdiction or preventing infringement or misappropriation of our proprietary or confidential information, resulting in loss of competitive advantage. In certain situations, we may be compelled to engage in intellectual property-related litigation to enforce our intellectual property rights, which may incur significant expense and may be perceived negatively by customers or industry partners, thus potentially resulting in reputational harm and may adversely impact our business, financial position and results of operations. In addition, our competitors or other third parties may obtain patents for innovations that are used in our industry, or allege that our operations, marketing, trademarks, systems, processes or technologies infringe, misappropriate or violate their intellectual property rights. Given the complex,
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Table of Contentsrapidly changing and competitive technological and business environments in which we operate, if our competitors or other third parties are successful in obtaining such patents or prevail in intellectual property-related litigation or demands against us, we could lose significant revenues, incur significant license, royalty, technology development or other expenses, or pay significant damages. Furthermore, given intellectual property ownership and license rights surrounding AI, such as generative AI, are currently not fully addressed by courts or regulators, any output created by us using AI may not be subject to copyright or other intellectual property protection, which may adversely affect our intellectual property or other proprietary rights in, or ability to commercialize or use, any such output, and our use or adoption of AI may result in exposure to claims by third parties.We license certain intellectual property and technology that are important to our business, and in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. If we fail to comply with any of these obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor (or other applicable counterparty) may cause us to lose valuable rights, and could disrupt our operations and harm our reputation. In the future, we may identify additional third-party intellectual property and technology we need, including to develop and offer new products and services. However, such licenses may not be available on acceptable terms or at all.
While we believe that we have all the necessary licenses from third parties for any intellectual property, including technology and software, that we use in the operations of our business but do not own, a third party could nonetheless allege that we are infringing its rights, which may deter our ability to obtain licenses on commercially reasonable terms from the third party, if at all, or cause the third party to commence litigation against us. Our failure to obtain necessary licenses or other rights, or litigation or claims arising out of intellectual property matters, may adversely impact our business, financial position and results of operations.
Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk.Management of market, credit, liquidity, strategic, reputational, operational and compliance risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events. See “Part II—Item 7. MD&A — Risk Management” for further details. Our Framework is designed to identify, measure, assess, monitor, test, control, report, escalate and mitigate the risks that we face. Even though we continue to devote significant resources to operating and governing our Framework, our risk management strategies may not be fully effective in identifying and mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. In addition, the Transaction introduced new and different sources of risk that may present unique risk exposures. As a result of the Transaction, we have inherited control gaps and risk exposures that differ in nature, timing and magnitude from those we have historically managed. Integrating Discover’s products, services and operations into our Framework may involve complexities, require changes to existing policies and controls, and take longer than anticipated to fully remediate or align.
Some of our methods of managing these risks are based upon our use of observed historical market behavior, the use of analytical and/or forecasting models and management’s judgment. These methods may not accurately predict future exposures, which could be significantly greater than the historical measures or models indicate, and market conditions, particularly during a period of financial market stress, can involve unprecedented dislocations. For example, credit risk is inherent in the financial services business and results from, among other things, extending credit to customers. Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage and underwrite our consumer and commercial customers become less predictive of future charge-offs due, for example, to rapid changes in the economy, or degradation in the predictive nature of credit bureau and other data used in underwriting.
While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. For example, our ability to implement our risk management strategies may be hindered by adverse changes in the volatility or liquidity conditions in certain markets and, as a result, may limit our ability to distribute such risks (for instance, when we seek to syndicate exposure in bridge financing transactions we have underwritten). We may, therefore, incur losses in the course of our risk management or investing activities. As our business expands and evolves, including in connection with the Transaction and the adoption of new technologies, such as AI, our risk management methods may not always effectively adapt with those changes.Our business could be negatively affected if we are unable to attract, develop, retain and motivate key senior leaders and skilled employees.49Capital One Financial Corporation (COF)
Table of ContentsOur success depends, in large part, on our ability to retain key senior leaders and to attract, develop and retain skilled employees, particularly employees with advanced expertise in credit, risk, digital and technology skills. We depend on our senior leaders and skilled employees to oversee simultaneous, transformative initiatives across the enterprise and execute on our business plans in an efficient and effective manner. The market for such senior leaders and skilled employees can be competitive and hard to predict, and attracting, developing and retaining them may require significant investment generally and in any given year. While we engage in robust succession planning, our key senior leaders have deep and broad industry experience and could be difficult to replace without some degree of disruption.
Our ability to attract, develop and retain qualified employees or effectively transition key roles in connection with the Transaction is also affected by perceptions of our culture and management, including our position on remote and hybrid work arrangements, our profile in the regions where we have offices and the professional opportunities we offer.Regulation or regulatory guidance restricting executive compensation, as well as evolving investor expectations, may limit the types of compensation arrangements that we may enter into with our most senior leaders and could have a negative impact on our ability to attract, retain and motivate such leaders in support of our long-term strategy. These laws and regulations may not apply in the same manner to all financial institutions and technology companies, which therefore may subject us to more restrictions than other institutions and companies with which we compete for talent and may also hinder our ability to compete for talent with other industries. We rely upon our senior leaders not only for business success, but also to lead with integrity. To the extent our senior leaders behave in a manner that does not comport with our values, the consequences to our brand and reputation could be severe and could adversely affect our financial condition and results of operations. If we are unable to attract, develop and retain talented senior leadership and employees, or to implement appropriate succession plans for our senior leadership, our business could be negatively affected.In addition, advances in technology, such as automation and AI, may lead to workforce evolution. This could require us to invest in additional employee training, manage impacts on morale and retention, and compete for employment candidates who possess more advanced technological skills, all of which could have a negative impact on our business and operations.We face risks from catastrophic events.Natural disasters, geopolitical events, supply chain issues and other catastrophic events can have widespread and unpredictable impacts on global society, economic conditions and consumer and business behavior, which may reoccur or occur over an extended duration. These events could harm our employees, business and infrastructure, including our information technology systems and third-party platforms. Our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our business and the communities where we are located, which are concentrated in the Northern Virginia, New York and Chicago metropolitan areas, Richmond, Virginia, Plano, Texas and the Philippines. This may include a disruption involving damage or loss of access to a physical site, cyber-attacks and other security incidents, terrorist activities, the occurrence or worsening of disease outbreaks or pandemics, natural disasters, extreme weather events, electrical outage, environmental hazards, disruption to technological infrastructure, communications or other services we use, our employees or third parties with whom we conduct business. Our business, financial condition and results of operations may be impacted by any such disruption and our ability to implement corresponding response measures quickly. In addition, if a natural disaster or other catastrophic event occurs in certain regions where our business, customers or assets securing our loans are concentrated, such as the mid-Atlantic, New York, California or Texas metropolitan areas, or in regions where our third-party platforms are located, we could be disproportionately impacted as compared to our competitors. Portions of our business concentrated primarily on serving the global travel industry, including the Diners Club network, could be disproportionately affected by events that are global in nature, including events that impact international conditions, travel restrictions or perceptions about the safety of travel, all of which may result in an indefinite decline in consumer or business travel activity. The impact of such events and other catastrophes on the overall economy and our physical and transition risks may also adversely affect our financial condition and results of operations.Climate change manifesting as physical or transition risks could adversely affect our businesses, operations and customers and result in increased costs.
Climate change risks can manifest as physical or transition risks.Physical risks are the risks from the effects of climate change arising from acute, climate-related events, such as hurricanes, flooding and wildfires, and chronic shifts in climate, such as sea level rise and higher average temperatures. Such events could
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Table of Contentslead to financial losses or disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.
Transition risks are the risks resulting from the shift toward a lower-carbon economy arising from the changes in policy, consumer and business sentiment or technologies associated with changes to limit climate change. Transition risks, including changes in consumer preferences and additional regulatory requirements or taxes, could increase our expenses, affect credit performance and impact our strategies or those of our customers.
Physical and transition risks could also affect the financial health of certain customers in impacted industries or geographies. In addition, due to divergent views of stakeholders, we are at increased risk that any action, or lack thereof, by us concerning our response to climate change could be perceived negatively by some stakeholders, which could adversely impact our reputation and businesses. Further, there may be increased scrutiny of climate change-related policies, goals and disclosures, which could result in litigation and regulatory investigations and actions. We may incur additional costs and require additional resources as we evolve our strategy, practices and related disclosures with respect to these matters.
As climate risk is interconnected with many risk types, we continue to enhance processes to embed evolving climate risk considerations into our existing risk management strategies; however, because the timing and severity of climate change may not be predictable, our risk management strategies may not be effective in mitigating climate risk exposure. Additionally, estimations used in climate reporting and climate-related risk assessments have an increased level of uncertainty due to limited historical trend information and the absence of standardized, reliable and comprehensive greenhouse gas emissions data across the economy, which could cause these risk assessments to vary significantly over time or actual risks to vary from our assessments.We face risks from the use of or changes to assumptions or estimates in our financial statements.Pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”), we are required to use certain assumptions, judgments and estimates in preparing our financial statements, including determining our allowance for credit losses, the liability for legal actions, the fair value of certain assets and liabilities, and goodwill impairment, among other items. In addition, the FASB, the SEC and other regulatory bodies may issue new or amend existing accounting and reporting standards or change existing interpretations of those standards, including those related to assumptions and estimates we use to prepare our financial statements, in ways that we cannot predict and that could materially impact our financial statements. If actual results differ from the assumptions, judgments or estimates underlying our financial statements or if financial accounting and reporting standards are changed, we may experience unexpected material losses. For a discussion of our use of estimates in the preparation of our consolidated financial statements, see “Part II—Item 7. MD&A—Critical Accounting Policies and Estimates” and “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”The soundness of other financial institutions and other third parties, actual or perceived, could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the stability and actions of other financial services institutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty and other relationships. We have exposure to financial institutions, intermediaries and counterparties that are exposed to risks over which we have little or no control.Since 2023, several financial services institutions failed or required outside liquidity support, in many cases, as a result of the inability of the institutions to obtain needed liquidity. For example, Silicon Valley Bank, Signature Bank and First Republic Bank were closed in 2023 and placed under FDIC receivership. This has led to additional risk for other financial services institutions and the financial services industry generally as a result of increased lack of confidence in the financial sector. The failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations. For information on the FDIC’s special assessment following the closures of Silicon Valley Bank and Signature Bank, see “Part I—Item 1. Business—Supervision and Regulation.”
In addition, we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients, resulting in a significant credit concentration with respect to the financial services industry overall. As a result, defaults by, or even rumors or questions
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Table of Contentsabout, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.
Likewise, adverse developments affecting the overall strength and soundness of our competitors, the financial services industry as a whole and the general economic climate and the U.S. Treasury market could have a negative impact on perceptions about the strength and soundness of our business even if we are not subject to the same adverse developments. In addition, adverse developments with respect to third parties with whom we have important relationships also could negatively impact perceptions about us. These perceptions about us could cause our business to be negatively affected and exacerbate the other risks that we face. Moreover, the speed with which information spreads through news, social media and other sources on the Internet and the ease with which customers transact may amplify the onset and negative effects from such perceptions, such as rapid deposit withdrawals or other outflows.
Item 7 · Management's Discussion & Analysis
+865 paragraphs −826 paragraphs ~826 changed
FY 2024-12-31 (earlier)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “Part I—Item 1. Business—Forward-Looking Statements” for more information on the forward-looking statements in this Report. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. Our actual results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not limited to, those described in “Part I—Item 1A. Risk Factors” in this Report. Unless otherwise specified, references to notes to our consolidated financial statements refer to the notes to our consolidated financial statements as of December 31, 2024 included in this Report.
Management monitors a variety of key indicators to evaluate our business results and financial condition. The following MD&A is intended to provide the reader with an understanding of our results of operations and financial condition, including capital and liquidity management, by focusing on changes from year to year in certain key measures used by management to evaluate performance, such as profitability, growth and credit quality metrics. MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements as of and for the year ended December 31, 2024 and accompanying notes. MD&A is organized in the following sections:• Selected Financial Data
• Capital Management
• Executive Summary • Risk Management
• Consolidated Results of Operations • Credit Risk Profile
• Consolidated Balance Sheets Analysis • Liquidity Risk Profile
• Off-Balance Sheet Arrangements • Market Risk Profile
• Business Segment Financial Performance • Supplemental Tables
• Critical Accounting Policies and Estimates • Glossary and Acronyms
• Accounting Changes and Developments52Capital One Financial Corporation (COF)
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SELECTED FINANCIAL DATAThe following table presents selected consolidated financial data and performance metrics for the three-year period ended December 31, 2024, 2023 and 2022. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We consider these metrics to be key financial measures that management uses in assessing our operating performance, capital adequacy and the level of returns generated. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), nor are they necessarily comparable to non-GAAP measures that may be presented by other companies.Three-Year Summary of Selected Financial Data(Dollars in millions, except per share data and as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Income statementInterest income $ 46,034 $ 41,938 $ 31,237 10% 34%
Interest expense 14,826 12,697 4,123 17 **
Net interest income $ 31,208 $ 29,241 $ 27,114 7 8
Non-interest income 7,904 7,546 7,136 5 6
Total net revenue 39,112 36,787 34,250 6 7
Provision for credit losses 11,716 10,426 5,847 12 78Non-interest expense:Marketing 4,562 4,009 4,017 14 —
Operating expense 16,924 16,307 15,146 4 8
Total non-interest expense 21,486 20,316 19,163 6 6
Income from continuing operations before income taxes 5,910 6,045 9,240 (2) (35)
Income tax provision 1,163 1,158 1,880 — (38)
Income from continuing operations, net of tax 4,747 4,887 7,360 (3) (34)
Income (loss) from discontinued operations, net of tax 3 — — ** —
Net income 4,750 4,887 7,360 (3) (34)
Dividends and undistributed earnings allocated to participating securities (77) (77) (88) — (13)
Preferred stock dividends (228) (228) (228) — —
Net income available to common stockholders $ 4,445 $ 4,582 $ 7,044 (3) (35)Common share statistics
Basic earnings per common share:Net income from continuing operations $ 11.60 $ 11.98 $ 17.98 (3)% (33)%
Income (loss) from discontinued operations 0.01 — — ** —
Net income per basic common share $ 11.61 $ 11.98 $ 17.98 (3) (33)Diluted earnings per common share:Net income from continuing operations $ 11.58 $ 11.95 $ 17.91 (3)% (33)%
Income (loss) from discontinued operations 0.01 — — ** —
Net income per diluted common share $ 11.59 $ 11.95 $ 17.91 (3) (33)
Common shares outstanding (period-end, in millions) 381.2 380.4 381.3 — —
Dividends declared and paid per common share $ 2.40 $ 2.40 $ 2.40 — —
Book value per common share (period-end) 159.44 152.71 137.90 4 11Tangible book value per common share (period-end) (1)106.97 99.78 86.11 7 16
53Capital One Financial Corporation (COF)
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Common dividend payout ratio (2)
20.67% 20.03% 13.35% 1 7
Stock price per common share (period-end) $ 178.32 $ 131.12 $ 92.96 36 41
Total market capitalization (period-end) 67,981 49,877 35,447 36 41Balance sheet (average balances)Loans held for investment $ 317,421 $ 311,541 $ 292,238 2% 7%
Interest-earning assets 453,481 441,238 406,646 3 9
Total assets 480,451 467,807 440,538 3 6
Interest-bearing deposits 324,297 313,737 277,208 3 13
Total deposits 351,168 343,554 313,551 2 10
Borrowings 48,465 49,332 51,006 (2) (3)
Common equity 54,953 50,349 50,279 9 —
Total stockholders’ equity 59,799 55,195 55,125 8 —Selected performance metricsPurchase volume $ 654,436 $ 620,290 $ 587,283 6% 6%
Total net revenue margin (3)
8.62% 8.34% 8.42 % 28bps (8) bps
Net interest margin 6.88 6.63 6.67 25 (4)
Return on average assets (4)
0.99 1.04 1.67 (5) (63)
Return on average tangible assets (5)
1.02 1.08 1.73 (6) (65)
Return on average common equity (6)
8.08 9.10 14.01 (102) (491)
Return on average tangible common equity (7)
11.18 13.04 19.91 (186) (687)
Equity-to-assets ratio (8)
12.45 11.80 12.51 65 (71)
Efficiency ratio (9)
54.93 55.23 55.95 (30) (72)
Operating efficiency ratio (10)
43.27 44.33 44.22 (106) 11
Adjusted operating efficiency ratio (11)
42.35 43.54 44.53 (119) (99)
Effective income tax rate from continuing operations 19.7 19.2 20.3 50 (110)
Net charge-offs $ 10,748 $ 8,414 $ 3,973 28% 112%
Net charge-off rate 3.39 % 2.70 % 1.36 % 69bps 134 bpsDecember 31, Change(Dollars in millions, except as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Balance sheet (period-end)Loans held for investment $ 327,775 $ 320,472 $ 312,331 2% 3%
Interest-earning assets 463,058 449,701 427,248 3 5
Total assets 490,144 478,464 455,249 2 5
Interest-bearing deposits 336,585 320,389 300,789 5 7
Total deposits 362,707 348,413 332,992 4 5
Borrowings 45,551 49,856 48,715 (9) 2
Common equity 55,938 53,244 47,737 5 12
Total stockholders’ equity 60,784 58,089 52,582 5 10Credit quality metricsAllowance for credit losses $ 16,258 $ 15,296 $ 13,240 6% 16%Allowance coverage ratio4.96 % 4.77 % 4.24% 19bps 53 bps
30+ day performing delinquency rate 3.69 3.71 2.96 (2) 75
30+ day delinquency rate 3.98 3.99 3.21 (1) 78
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December 31, Change(Dollars in millions, except as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Capital ratios
Common equity Tier 1 capital (12)13.5 % 12.9 % 12.5% 60 bps 40 bpsTier 1 capital (12)14.8 14.2 13.9 60 30Total capital (12)16.4 16.0 15.8 40 20Tier 1 leverage (12)11.6 11.2 11.1 40 10
Tangible common equity (13)
8.6 8.2 7.5 39 70Supplementary leverage (12)9.9 9.6 9.5 30 10OtherEmployees (period end, in thousands) 52.6 52.0 56.0 1% (7)%__________(1) Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity (“TCE”) divided by common shares outstanding. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.(2) Common dividend payout ratio is calculated based on dividends per common share for the period divided by basic earnings per common share for the period.(3) Total net revenue margin is calculated based on total net revenue for the period divided by average interest-earning assets for the period.
(4) Return on average assets is calculated based on income from continuing operations, net of tax, for the period divided by average total assets for the period.
(5) Return on average tangible assets is a non-GAAP measure calculated based on income from continuing operations, net of tax, for the period divided by average tangible assets for the period. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(6) Return on average common equity is calculated based on net income (loss) available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.
(7) Return on average tangible common equity is a non-GAAP measure calculated based on net income (loss) available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average TCE. Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(8) Equity-to-assets ratio is calculated based on average stockholders’ equity for the period divided by average total assets for the period.
(9) Efficiency ratio is calculated based on total non-interest expense for the period divided by total net revenue for the period.
(10) Operating efficiency ratio is calculated based on operating expense for the period divided by total net revenue for the period.
(11) Adjusted operating efficiency ratio is a non-GAAP measure. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for a reconciliation of our adjusted operating efficiency ratio (non-GAAP) to our operating efficiency ratio (GAAP).(12) Capital ratios are calculated based on the Basel III standardized approach framework. See “Capital Management” for additional information.(13) Tangible common equity ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.** Not meaningful.55Capital One Financial Corporation (COF)
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EXECUTIVE SUMMARY
Financial HighlightsWe reported net income of $4.8 billion ($11.59 per diluted common share) on total net revenue of $39.1 billion for 2024. In comparison, we reported net income of $4.9 billion ($11.95 per diluted common share) on total net revenue of $36.8 billion for 2023 and net income of $7.4 billion ($17.91 per diluted common share) on total net revenue of $34.3 billion for 2022.
Our CET1 capital ratio as calculated under the Basel III standardized approach was 13.5% and 12.9% of December 31, 2024 and 2023, respectively. See “Capital Management” for additional information.
For the year ended December 31, 2024, we declared and paid common stock dividends of $937 million and repurchased $553 million of shares of our common stock. See “Capital Management—Dividend Policy and Stock Purchases” for additional information.
Below are additional highlights of our performance in 2024. These highlights are based on a comparison between the results of 2024 and 2023, except as otherwise noted. The changes in our financial condition and credit performance are generally based on our financial condition and credit performance as of December 31, 2024 compared to December 31, 2023. We provide a more detailed discussion of our financial performance in the sections following this “Executive Summary.”Total Company Performance
• Earnings:Our net income decreased by $137 million to $4.8 billion in 2024 compared to 2023 primarily driven by:
◦ Higher provision for credit losses primarily driven by higher net charge-offs in our domestic credit card loan portfolio, including the impacts of the elimination of loss sharing provisions due to the Walmart Program Termination, partially offset by a lower allowance build.
◦ Higher non-interest expense primarily driven by growth in our Credit Card business, including increased marketing spend.These drivers were partially offset by:◦ Higher net-interest income primarily driven by higher average loan balances and margins in our credit card loan portfolio, including the impacts of the elimination of revenue sharing provisions due to the Walmart Program Termination, partially offset by higher rates paid on interest-bearing deposits.• Loans Held for Investment:◦ Period-end loans held for investment increased by $7.3 billion to $327.8 billion as of December 31, 2024 from December 31, 2023 primarily driven by growth in our credit card loan portfolio.
◦ Average loans held for investment increased by $5.9 billion to $317.4 billion in 2024 compared to 2023 primarily driven by growth in our credit card loan portfolio.• Net Charge-Off and Delinquency Metrics:◦ Our net charge-off rate increased by 69 basis points (“bps”) to 3.39% in 2024 compared to 2023.
◦ Our 30+ day delinquency rate remained substantially flat at 3.98% as of December 31, 2024 compared to 3.99% as of December 31, 2023.
• Allowance for Credit Losses: Our allowance for credit losses increased by $962 million to $16.3 billion and our allowance coverage ratio increased by 19 bps to 4.96% as of December 31, 2024 compared to December 31, 2023 primarily driven by an allowance build due to the Walmart Program Termination in the second quarter of 2024.
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Table of ContentsCONSOLIDATED RESULTS OF OPERATIONSThe section below provides a comparative discussion of our consolidated financial performance for 2024, 2023 and 2022. We provide a discussion of our business segment results in the following section, “Business Segment Financial Performance.” This section should be read together with our “Executive Summary,” where we discuss trends and other factors that we expect will affect our future results of operations.Net Interest IncomeNet interest income represents the difference between interest income, including certain fees, earned on our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. Our interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees, net of reversals, on loans that we deem collectible. Our net interest margin represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of non-interest-bearing funding. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.
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Table of ContentsTable 1 below presents the average outstanding balance, interest income earned, interest expense incurred and average yield for 2024, 2023 and 2022 for each major category of our interest-earning assets and interest-bearing liabilities. Nonperforming loans are included in the average loan balances below.Table 1: Average Balances, Net Interest Income and Net Interest Margin
Year Ended December 31,2024 2023 2022(Dollars in millions) Average Balance Interest Income/ Expense Average Yield/
Rate (1)
Average Balance Interest Income/ Expense Average Yield/
Rate (1)
Average Balance Interest Income/ Expense Average Yield/
Rate (1)
Assets:
Interest-earning assets:
Loans: (2)Credit card $ 153,115 $ 29,226 19.09 % $ 141,675 $ 26,267 18.54 % $ 121,055 $ 19,626 16.21 %
Consumer banking 75,974 6,612 8.70 77,514 6,041 7.79 80,511 5,782 7.18Commercial banking (3)89,007 6,301 7.08 92,984 6,363 6.84 92,273 3,702 4.01Other (4)— (1,245) ** — (1,261) ** — (200) **
Total loans, including loans held for sale 318,096 40,894 12.86 312,173 37,410 11.98 293,839 28,910 9.84
Investment securities 90,250 2,873 3.18 89,105 2,550 2.86 90,608 1,884 2.08
Cash equivalents and other interest-earning assets 45,135 2,267 5.02 39,960 1,978 4.95 22,199 443 2.00
Total interest-earning assets 453,481 46,034 10.15 441,238 41,938 9.50 406,646 31,237 7.68
Cash and due from banks 3,793 3,869 5,054
Allowance for credit losses (15,968) (14,290) (11,620)
Premises and equipment, net 4,409 4,373 4,265
Other assets 34,736 32,617 36,193
Total assets $ 480,451 $ 467,807 $ 440,538Liabilities and stockholders’ equity:
Interest-bearing liabilities:Interest-bearing deposits $ 324,297 $ 11,493 3.54 % $ 313,737 $ 9,489 3.02% $ 277,208 $ 2,535 0.91 %
Securitized debt obligations 16,507 958 5.80 17,675 959 5.42 15,603 384 2.46
Senior and subordinated notes 31,529 2,333 7.40 31,109 2,204 7.08 29,286 1,074 3.67Other borrowings and interest-bearing liabilities (5)2,424 42 1.71 2,394 45 1.89 7,800 130 1.67
Total interest-bearing liabilities 374,757 14,826 3.96 364,915 12,697 3.48 329,897 4,123 1.25
Non-interest-bearing deposits 26,871 29,817 36,343
Other liabilities 19,024 17,880 19,173
Total liabilities 420,652 412,612 385,413
Stockholders’ equity 59,799 55,195 55,125
Total liabilities and stockholders’ equity $ 480,451 $ 467,807 $ 440,538
Net interest income/spread $ 31,208 6.20 $ 29,241 6.03 $ 27,114 6.43
Impact of non-interest-bearing funding 0.68 0.60 0.24
Net interest margin (6)
6.88 % 6.63% 6.67 %__________(1) Average yield is calculated based on interest income for the period divided by average loans during the period. Interest income does not include any allocations, such as funds transfer pricing. Average yield is calculated using whole dollar values for average balances and interest income/expense.
(2) Past due fees, net of reversals, included in interest income totaled approximately $2.3 billion in 2024, $2.2 billion in 2023 and $1.9 billion in 2022.
(3) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our commercial loans totaled approximately $79 million in 2024 and $74 million in both 2023 and 2022, with corresponding reductions to the Other category.
(4) Interest income/expense in the Other category represents the impact of hedge accounting on our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.
(5) Includes amounts related to entities that provide capital to low-income and rural communities of $2.0 billion, $1.8 billion and $1.7 billion in 2024, 2023 and 2022, respectively. Related interest expense was $31 million , $32 million and $29 million for 2024, 2023 and 2022, respectively.
(6) The Walmart Program Termination increased net interest margin by 13 bps in 2024.
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Table of Contents** Not meaningful.Net interest income increased by $2.0 billion to $31.2 billion in 2024 compared to 2023 primarily driven by higher average loan balances and margins in our credit card loan portfolio, including the impacts of the elimination of revenue sharing provisions due to the Walmart Program Termination, partially offset by higher rates paid on interest-bearing deposits.
Net interest margin increased by 25 bps to 6.88% in 2024 compared to 2023 primarily driven by higher asset yields and growth in our credit card loan portfolio, partially offset by higher rates paid on interest-bearing deposits.
Our total company cumulative interest-bearing deposit beta for the rising rate cycle peaked at 62% in the second quarter of 2024 before the federal funds rate began to decrease. As of December 31, 2024, our total company cumulative deposit beta for the falling rate cycle was 11% as our total company deposit rate decreased as the federal funds rate decreased.Table 2 displays the change in our net interest income between periods and the extent to which the variance is attributable to:• changes in the volume of our interest-earning assets and interest-bearing liabilities; or
• changes in the interest rates related to these assets and liabilities.Table 2: Rate/Volume Analysis of Net Interest Income (1)2024 vs. 2023 2023 vs. 2022(Dollars in millions) Total Variance Volume Rate Total Variance Volume Rate
Interest income:
Loans:Credit card $ 2,959 $ 2,166 $ 793 $ 6,641 $ 3,584 $ 3,057
Consumer banking 571 (120) 691 259 (215) 474Commercial banking (2)(62) (272) 210 2,661 29 2,632Other (3)16 — 16 (1,061) — (1,061)
Total loans, including loans held for sale 3,484 1,774 1,710 8,500 3,398 5,102
Investment securities 323 33 290 666 (31) 697
Cash equivalents and other interest-earning assets 289 259 30 1,535 476 1,059
Total interest income 4,096 2,066 2,030 10,701 3,843 6,858Interest expense:Interest-bearing deposits 2,004 328 1,676 6,954 371 6,583
Securitized debt obligations (1) (64) 63 575 56 519
Senior and subordinated notes 129 30 99 1,130 71 1,059
Other borrowings and liabilities (3) 1 (4) (85) (90) 5
Total interest expense 2,129 295 1,834 8,574 408 8,166
Net interest income $ 1,967 $ 1,771 $ 196 $ 2,127 $ 3,435 $ (1,308)__________(1) We calculate the change in interest income and interest expense separately for each item. The portion of interest income or interest expense attributable to both volume and rate is allocated proportionately when the calculation results in a positive value. When the portion of interest income or interest expense attributable to both volume and rate results in a negative value, the total amount is allocated to volume or rate, depending on which amount is positive.(2) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
(3) Interest income/expense in the Other category represents the impact of hedge accounting on our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.59
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Table of ContentsNon-Interest IncomeTable 3 displays the components of non-interest income for 2024, 2023 and 2022.Table 3: Non-Interest Income
Year Ended December 31,(Dollars in millions) 2024 2023 2022
Interchange fees, net $ 4,882 $ 4,793 $ 4,606
Service charges and other customer-related fees 1,976 1,667 1,625
Net securities losses
(35) (34) (9)Other (1)(2)1,081 1,120 914
Total non-interest income $ 7,904 $ 7,546 $ 7,136
________
(1) Primarily consists of revenue from Capital One Shopping, treasury and other investment income and commercial mortgage banking revenue.
(2) Includes gains of $94 million and $86 million and losses of $78 million on deferred compensation plan investments for 2024 , 2023 and 2022, respectively. These amounts have corresponding offsets in non-interest expense.
Non-interest income increased by $358 million to $7.9 billion in 2024 compared to 2023 primarily driven by higher capital markets activity in our Commercial Banking business and growth in our Credit Card business.
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Table of ContentsProvision for Credit LossesOur provision for credit losses in each period is driven by net charge-offs, changes to the allowance for credit losses and changes to the reserve for unfunded lending commitments. We recorded a provision for credit losses of $11.7 billion in 2024, $10.4 billion in 2023 and $5.8 billion in 2022.
Our provision for credit losses increased by $1.3 billion to $11.7 billion in 2024 as compared to 2023 driven by higher net charge-offs in our domestic credit card loan portfolio, including the impacts of the elimination of loss sharing provisions due to the Walmart Program Termination, partially offset by a lower allowance build.
We provide additional information on the provision for credit losses and changes in the allowance for credit losses within “Credit Risk Profile” and “Item 8. Financial Statements and Supplementary Data—Note 5—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.” For information on the allowance methodology for each of our loan categories, see “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
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Non-Interest ExpenseTable 4 displays the components of non-interest expense for 2024, 2023 and 2022.Table 4: Non-Interest Expense
Year Ended December 31,(Dollars in millions) 2024 2023 2022
Operating Expense:Salaries and associate benefits (1)$ 9,398 $ 9,302 $ 8,425
Occupancy and equipment 2,366 2,160 2,050
Professional services 1,610 1,268 1,807
Communications and data processing 1,462 1,383 1,379
Amortization of intangibles 77 82 70Other non-interest expense:Bankcard, regulatory and other fee assessments 304 548 264
Collections 366 353 331
Other 1,341 1,211 820
Total other non-interest expense 2,011 2,112 1,415
Total operating expense $ 16,924 $ 16,307 $ 15,146
Marketing 4,562 4,009 4,017
Total non-interest expense $ 21,486 $ 20,316 $ 19,163_________(1) Includes expenses of $94 million and $86 million and a benefit of $78 million related to our deferred compensation plan for 2024, 2023 and 2022, respectively. These amounts have corresponding offsets from investments in other non-interest income.
Non-interest expense increased by $1.2 billion to $21.5 billion in the year ended 2024 compared to 2023, primarily driven by growth in our Credit Card business, including increased marketing spend.
For the year ended December 31, 2024, we have incurred $234 million of integration expenses related to the Transaction, primarily driven by professional services, which are included within operating expense in our consolidated statements of income.
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Income TaxesWe recorded an income tax provision of $1.2 billion (19.7% effective income tax rate), $1.2 billion (19.2% effective income tax rate) and $1.9 billion (20.3% effective income tax rate) in 2024, 2023 and 2022, respectively. Our effective tax rate on income from continuing operations varies between periods due, in part, to the impact of changes in pre-tax income and changes in tax credits, tax-exempt income and non-deductible expenses relative to our pre-tax earnings.
Our effective income tax rate in 2024 increased by 0.5% compared to 2023. We recorded discrete tax benefit of $27 million in 2024, discrete tax expense of $6 million in 2023, and discrete tax benefit of $71 million in 2022.We provide additional information on items affecting our income taxes and effective tax rate in “Item 8. Financial Statements and Supplementary Data—Note 16—Income Taxes.”CONSOLIDATED BALANCE SHEETS ANALYSISTotal assets increased by $11.7 billion to $490.1 billion as of December 31, 2024 from December 31, 2023 primarily driven by higher loans held for investment and securities available for sale balances.
Total liabilities increased by $9.0 billion to $429.4 billion as of December 31, 2024 from December 31, 2023 primarily driven by deposit growth due to our national consumer banking strategy, partially offset by net maturities and paydowns of our securitized debt obligations. Our national consumer banking strategy includes our national brand and marketing strategy, cafés and tech / digital investments, which have enabled us to both deepen and grow our overall customer base.
Stockholders’ equity increased by $2.7 billion to $60.8 billion as of December 31, 2024 from December 31, 2023 primarily driven by net income of $4.8 billion, partially offset by stock dividends and an increase in accumulated other comprehensive loss.
The following is a discussion of material changes in the major components of our assets and liabilities during 2024. Period-end balance sheet amounts may vary from average balance sheet amounts due to the timing of normal balance sheet management activities that are intended to support our capital and liquidity positions, our market risk profile and the needs of our customers.Investment SecuritiesOur investment securities portfolio consists of the following: U.S. government-sponsored enterprise or agency (“GSE” or “Agency”) and non-agency residential mortgage-backed securities (“RMBS”), agency commercial mortgage-backed securities (“CMBS”), U.S. Treasury securities and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in Agency and U.S. Treasury securities represented 96% and 97% of our total investment securities portfolio as of December 31, 2024 and 2023, respectively.
The fair value of our available for sale securities portfolio increased by $3.9 billion to $83.0 billion as of December 31, 2024 from December 31, 2023, primarily driven by net purchases. See “Item 8. Financial Statements and Supplementary Data—Note 3—Investment Securities” for more information.
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Loans Held for InvestmentTotal loans held for investment consists of both unsecuritized loans and loans held in our consolidated trusts. Table 5 summarizes, by portfolio segment, the carrying value of our loans held for investment, the allowance for credit losses and net loan balance as of December 31, 2024 and 2023.Table 5: Loans Held for InvestmentDecember 31, 2024 December 31, 2023(Dollars in millions) Loans Allowance Net Loans Loans Allowance Net LoansCredit Card $ 162,508 $ (12,974) $ 149,534 $ 154,547 $ (11,709) $ 142,838
Consumer Banking 78,092 (1,884) 76,208 75,437 (2,042) 73,395
Commercial Banking 87,175 (1,400) 85,775 90,488 (1,545) 88,943
Total $ 327,775 $ (16,258) $ 311,517 $ 320,472 $ (15,296) $ 305,176
Loans held for investment increased by $7.3 billion to $327.8 billion as of December 31, 2024 compared to December 31, 2023 primarily driven by growth in our credit card loan portfolio.We provide additional information on the composition of our loan portfolio and credit quality in “Credit Risk Profile,” “Consolidated Results of Operations” and “Item 8. Financial Statements and Supplementary Data—Note 4—Loans.”
Funding SourcesOur primary source of funding comes from insured retail deposits, as they are a relatively stable and lower cost source of funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes, securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase, and Federal Home Loan Bank (“FHLB”) advances secured by certain portions of our loan and securities portfolios.
Table 6 provides the composition of our primary sources of funding as of December 31, 2024 and 2023.Table 6: Funding Sources CompositionDecember 31, 2024 December 31, 2023(Dollars in millions) Amount % of Total Amount % of Total
Deposits:Consumer Banking $ 318,329 78 % $ 296,171 74 %
Commercial Banking 31,691 8 32,712 8Other (1)12,687 3 19,530 5Total deposits362,707 89 348,413 87
Securitized debt obligations 14,264 3 18,043 5
Other debt 31,287 8 31,813 8
Total funding sources $ 408,258 100 % $ 398,269 100 %__________(1) Includes brokered deposits of $11.6 billion and $18.5 billion as of December 31, 2024 and 2023, respectively.
Total deposits increased by $14.3 billion to $362.7 billion as of December 31, 2024 from December 31, 2023 primarily driven by our national consumer banking strategy, partially offset by maturities in brokered deposits.
As of December 31, 2024 and 2023, we held $64.9 billion and $64.2 billion, respectively, of estimated uninsured deposits. These amounts were primarily comprised of checking and savings deposits. These estimated uninsured deposits comprised approximately 18% of our total deposits as of both December 31, 2024 and 2023. We estimate our uninsured amounts based on methodologies and assumptions used for our “Consolidated Reports of Condition and Income” (FFIEC 031) filed with the Federal Banking Agencies, adjusted to exclude intercompany balances and cash collateral received on certain derivative contracts which are not presented within deposits on our consolidated balance sheet.
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Table of ContentsSecuritized debt obligations decreased by $3.8 billion to $14.3 billion as of December 31, 2024 from December 31, 2023 primarily driven by net maturities of securitized debt obligations .
Other debt decreased by $526 million to $31.3 billion as of December 31, 2024 from December 31, 2023 primarily driven by net maturities of unsecured senior debt.We provide additional information on our funding sources in “Liquidity Risk Profile” and “Item 8. Financial Statements and Supplementary Data—Note 9—Deposits and Borrowings.”65Capital One Financial Corporation (COF)
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Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to management’s judgment that these future deductions are more likely than not to be realized. We evaluate the recoverability of these future tax deductions by assessing the adequacy of expected taxable income from all sources, including taxable income in carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and our short and long-range business forecasts to make these estimates.Deferred tax assets, net of deferred tax liabilities and valuation allowances, were approximately $9.1 billion as of December 31, 2024, an increase of $1.1 billion from December 31, 2023. The increase in our net deferred tax assets was primarily driven by an increase in our capitalized research costs, an increase in unrealized losses related to our available for sale securities and derivatives and an increase in our allowance for credit losses.
Our recorded valuation allowance balances were $529 million and $496 million as of December 31, 2024 and 2023, respectively. If changes in circumstances lead us to change our judgment about our ability to realize deferred tax assets in future years, we will adjust our valuation allowances in the period that our change in judgment occurs and record a corresponding increase or charge to income.We provide additional information on income taxes in “Consolidated Results of Operations” and “Item 8. Financial Statements and Supplementary Data—Note 16—Income Taxes.”66Capital One Financial Corporation (COF)
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OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. These activities typically involve transactions with unconsolidated variable interest entities (“VIEs”) as well as other arrangements, such as letters of credit, loan commitments and guarantees, to meet the financing needs of our customers and support their ongoing operations. We provide additional information regarding these types of activities in “Item 8. Financial Statements and Supplementary Data—Note 6—Variable Interest Entities and Securitizations” and “Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”67Capital One Financial Corporation (COF)
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BUSINESS SEGMENT FINANCIAL PERFORMANCEOur principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities that are not part of a business segment are included in the Other category, such as the management of our corporate investment portfolio and asset/liability positions performed by our centralized Corporate Treasury group and any residual tax expense or benefit beyond what is assessed to our business segments in order to arrive at the consolidated effective tax rate. The Other category also includes unallocated corporate expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges and integration expenses related to the Transaction.
The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources. We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies and changes in organizational alignment. Our business segment results are intended to reflect each segment as if it were a stand-alone business. We use an internal management and reporting process to derive our business segment results. Our internal management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenues and expenses directly or indirectly attributable to each business segment. Total interest income and non-interest income are directly attributable to the segment in which they are reported. The net interest income of each segment reflects the results of our funds transfer pricing process, which is primarily based on a matched funding concept that takes into consideration market interest rates. Our funds transfer pricing process is managed by our centralized Corporate Treasury group and provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each business segment. The allocation is unique to each business segment and acquired business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically, the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the business segments. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods.We refer to the business segment results derived from our internal management accounting and reporting process as our “managed” presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our business segment results may not be comparable to similar information provided by other financial services companies. In addition, our individual business segment results should not be used as a substitute for comparable results determined in accordance with U.S. GAAP.We summarize our business segment results for the years ended December 31, 2024, 2023 and 2022 and provide a comparative discussion of these results for 2024 and 2023, as well as changes in our financial condition and credit performance metrics as of December 31, 2024 compared to December 31, 2023. We provide a reconciliation of our total business segment results to our reported consolidated results in “Item 8. Financial Statements and Supplementary Data—Note 18—Business Segments and Revenue from Contracts with Customers.”
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Business Segment Financial PerformanceTable 7 summarizes our business segment results, which we report based on total net revenue (loss) and net income (loss) from continuing operations, for the years ended December 31, 2024, 2023 and 2022. We provide information on the allocation methodologies used to derive our business segment results in “Item 8. Financial Statements and Supplementary Data—Note 18—Business Segments and Revenue from Contracts with Customers.”Table 7 : Business Segment Results
Year Ended December 31,2024 2023 2022Total Net Revenue (Loss) (1)
Net Income
(Loss) (2)
Total Net Revenue (Loss) (1)
Net Income
(Loss) (2)
Total Net Revenue (Loss) (1)
Net Income
(Loss) (2)
(Dollars in millions) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of TotalCredit Card $ 28,164 72% $ 3,292 69% $ 25,669 70% $ 3,457 71% $ 22,355 65% $ 4,927 67%
Consumer Banking 8,718 22 1,460 31 9,302 25 2,258 46 9,434 28 2,250 31Commercial Banking (3)3,601 9 1,209 25 3,520 10 691 14 3,590 10 843 11Other (3)(1,371) (3) (1,214) (25) (1,704) (5) (1,519) (31) (1,129) (3) (660) (9)
Total $ 39,112 100% $ 4,747 100% $ 36,787 100% $ 4,887 100% $ 34,250 100% $ 7,360 100%__________
(1) Total net revenue (loss) consists of net interest income and non-interest income.
(2) Net income (loss) for our business segments and the Other category is based on income (loss) from continuing operations, net of tax.
(3) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.69Capital One Financial Corporation (COF)
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Credit Card BusinessThe primary sources of revenue for our Credit Card business are net interest income, net interchange income and annual membership fees collected from customers. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.
Our Credit Card business generated net income from continuing operations of $3.3 billion, $3.5 billion and $4.9 billion in 2024, 2023 and 2022, respectively.Table 8 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.
Table 8: Credit Card Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Selected income statement data:Net interest income $ 22,088 $ 19,729 $ 16,584 12% 19%
Non-interest income 6,076 5,940 5,771 2 3Total net revenue (1)28,164 25,669 22,355 10 15Provision for credit losses10,272 8,651 4,265 19 103
Non-interest expense 13,576 12,490 11,627 9 7
Income from continuing operations before income taxes 4,316 4,528 6,463 (5) (30)
Income tax provision 1,024 1,071 1,536 (4) (30)
Income from continuing operations, net of tax $ 3,292 $ 3,457 $ 4,927 (5) (30)Selected performance metrics:Average loans held for investment $ 152,868 $ 141,572 $ 120,392 8 18Average yield on loans (2)19.09 % 18.54 % 16.21 % 55bps 233bpsTotal net revenue margin (3)18.39 18.12 18.47 27 (35)
Net charge-offs $ 8,987 $ 6,472 $ 3,048 39% 112%
Net charge-off rate 5.88 % 4.57 % 2.53 % 131bps 204bps
Purchase volume $ 654,436 $ 620,290 $ 587,283 6% 6%
(Dollars in millions, except as noted) December 31, 2024 December 31, 2023 ChangeSelected period-end data:Loans held for investment $ 162,508 $ 154,547 5%
30+ day performing delinquency rate 4.53 % 4.61 % (8)bps
30+ day delinquency rate 4.54 4.62 (8)
Nonperforming loan rate (4)0.01 0.01 —Allowance for credit losses $ 12,974 $ 11,709 11%
Allowance coverage ratio 7.98% 7.58 % 40bps__________(1) We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge off any uncollectible amounts. Total net revenue was reduced by $2.6 billion, $1.9 billion, and $946 million in 2024, 2023 and 2022, respectively, for finance charges and fees charged-off as uncollectible.
(2) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(3) Total net revenue margin is calculated based on total net revenue for the period divided by average loans during the period.
(4) Within our credit card loan portfolio, certain loans in our international card businesses are classified as nonperforming. See “Nonperforming Loans and Other Nonperforming Assets” for additional information.
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Table of ContentsKey factors affecting the results of our Credit Card business for 2024 compared to 2023, and changes in financial condition and credit performance between December 31, 2024 and 2023 include the following:
• Net Interest Income: Net interest income increased by $2.4 billion to $22.1 billion in 2024 primarily driven by higher average loan balances and margins, including the impacts of the elimination of revenue sharing provisions due to the Walmart Program Termination.
• Non-Interest Income: Non-interest income increased by $136 million to $6.1 billion in 2024 due to growth in our Credit Card business.
• Provision for Credit Losses: Provision for credit losses increased by $1.6 billion to $10.3 billion in 2024 primarily driven by higher net charge-offs, including the impacts of the elimination of loss sharing provisions due to the Walmart Program Termination, partially offset by a lower allowance build.
• Non-Interest Expense: Non-interest expense increased by $1.1 billion to $13.6 billion in 2024 primarily driven by growth in our Credit Card business and increased marketing spend.Loans Held for Investment:• Period-end loans held for investment increased by $8.0 billion to $162.5 billion as of December 31, 2024 from December 31, 2023 driven by growth across our portfolio.
• Average loans held for investment increased by $11.3 billion to $152.9 billion in 2024 compared to 2023 driven by growth across our portfolio.Net Charge-Off and Delinquency Metrics:• The net charge-off rate increased by 131 bps to 5.88% in 2024 compared to 2023.
• The 30+ day delinquency rate decreased by 8 bps to 4.54% as of December 31, 2024 compared to December 31, 2023.
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Domestic Card BusinessThe Domestic Card business generated net income from continuing operations of $3.1 billion, $3.3 billion and $4.7 billion in 2024, 2023 and 2022, respectively. In 2024, 2023 and 2022, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.Table 8.1 summarizes the financial results for our Domestic Card business and displays selected key metrics for the periods indicated.
Table 8.1: Domestic Card Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Selected income statement data:Net interest income $ 20,881 $ 18,610 $ 15,616 12% 19%
Non-interest income 5,811 5,672 5,363 2 6Total net revenue (1)26,692 24,282 20,979 10 16
Provision for credit losses
9,867 8,268 4,020 19 106
Non-interest expense 12,727 11,648 10,827 9 8
Income from continuing operations before income taxes 4,098 4,366 6,132 (6) (29)
Income tax provision 967 1,030 1,453 (6) (29)
Income from continuing operations, net of tax $ 3,131 $ 3,336 $ 4,679 (6) (29)Selected performance metrics:Average loans held for investment $ 146,000 $ 135,213 $ 114,506 8 18Average yield on loans (2)19.03 % 18.46 % 16.07% 57bps 239 bps
Total net revenue margin (3)(4)
18.25 17.94 18.28 31 (34)
Net charge-offs $ 8,634 $ 6,164 $ 2,833 40% 118%
Net charge-off rate (5)
5.91 % 4.56 % 2.47% 135bps 209 bps
Purchase volume $ 639,341 $ 605,664 $ 568,752 6% 6%
(Dollars in millions, except as noted) December 31, 2024 December 31, 2023 ChangeSelected period-end data:Loans held for investment $ 155,618 $ 147,666 5%
30+ day performing delinquency rate 4.53 % 4.61 % (8)bps
Allowance for credit losses $ 12,494 $ 11,261 11%
Allowance coverage ratio (6)
8.03 % 7.63 % 40bps__________
(1) We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge off any uncollectible amounts. Finance charges and fees charged off as uncollectible are reflected as a reduction in total net revenue.
(2) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(3) Total net revenue margin is calculated based on total net revenue for the period divided by average loans during the period.(4) The Walmart Program Termination increased revenue margin by 30 bps in 2024.
(5) The Walmart Program Termination increased the net charge-off rate by 24 bps in 2024.
(6) The Walmart Program Termination resulted in an allowance for credit losses build of $826 million in the second quarter of 2024.
Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business decreased in 2024 compared to 2023 primarily driven by:
• Higher provision for credit losses driven by higher net charge-offs, including the impacts of the elimination of loss sharing provisions due to the Walmart Program Termination, partially offset by a lower allowance build.
• Higher non-interest expense primarily driven by growth in our Credit Card business and increased marketing spend.
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These drivers were partially offset by:• Higher net interest income primarily driven by higher average loan balances and margins, including the impacts of the elimination of revenue sharing provisions due to the Walmart Program Termination.Consumer Banking BusinessThe primary sources of revenue for our Consumer Banking business are net interest income from loans and deposits as well as service charges and customer-related fees. Expenses primarily consist of the provision for credit losses and operating costs.
Our Consumer Banking business generated net income from continuing operations of $1.5 billion in 2024 and $2.3 billion in both 2023 and 2022.Table 9 summarizes the financial results of our Consumer Banking business and displays selected key metrics for the periods indicated.
Table 9: Consumer Banking Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Selected income statement data:Net interest income $ 8,023 $ 8,713 $ 8,965 (8)% (3)%
Non-interest income 695 589 469 18 26
Total net revenue 8,718 9,302 9,434 (6) (1)
Provision for credit losses
1,435 1,169 1,173 23 —
Non-interest expense 5,372 5,178 5,312 4 (3)
Income from continuing operations before income taxes 1,911 2,955 2,949 (35) —
Income tax provision 451 697 699 (35) —
Income from continuing operations, net of tax $ 1,460 $ 2,258 $ 2,250 (35) —Selected performance metrics:
Average loans held for investment:Auto $ 74,692 $ 76,067 $ 78,772 (2) (3)
Retail banking 1,281 1,446 1,663 (11) (13)
Total consumer banking $ 75,973 $ 77,513 $ 80,435 (2) (4)Average yield on loans held for investment (1)8.70 % 7.79% 7.19% 91bps 60 bps
Average deposits $ 303,873 $ 285,880 $ 257,089 6% 11%
Average deposits interest rate 3.23 % 2.59 % 0.72 % 64bps 187 bps
Net charge-offs $ 1,593 $ 1,364 $ 854 17% 60%
Net charge-off rate 2.10 % 1.76 % 1.06 % 34bps 70 bps
Auto loan originations $ 34,542 $ 26,980 $ 36,965 28% (27)%
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(Dollars in millions, except as noted) December 31, 2024 December 31, 2023 ChangeSelected period-end data:
Loans held for investment:Auto $ 76,829 $ 74,075 4%
Retail banking 1,263 1,362 (7)
Total consumer banking $ 78,092 $ 75,437 4
30+ day performing delinquency rate 5.87 % 6.25 % (38)bps
30+ day delinquency rate 6.73 7.08 (35)
Nonperforming loan rate 0.99 1.00 (1)Nonperforming asset rate (2)1.08 1.09 (1)
Allowance for credit losses $ 1,884 $ 2,042 (8)%
Allowance coverage ratio 2.41 % 2.71 % (30)bps
Deposits $ 318,329 $ 296,171 7%_________
(1) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(2) Nonperforming assets primarily consist of nonperforming loans and repossessed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and repossessed assets.Key factors affecting the results of our Consumer Banking business for 2024 compared to 2023, and changes in financial condition and credit performance between December 31, 2024 and 2023 include the following:
• Net Interest Income: Net interest income decreased by $690 million to $8.0 billion in 2024 primarily driven by lower margins in our retail banking business, partially offset by higher deposits in our retail banking business.
• Non-Interest Income: Non-interest income increased by $106 million to $695 million in 2024 primarily driven by higher interchange revenue from an increase in debit card purchase volume and revenue earned from auto industry services.
• Provision for Credit Losses: Provision for credit losses increased by $266 million to $1.4 billion in 2024 primarily driven by higher net charge-offs and a lower allowance release in our auto loan portfolio.
• Non-Interest Expense: Non-interest expense increased by $194 million to $5.4 billion in 2024 primarily driven by a legal reserve build in the fourth quarter of 2024 and higher professional services.Loans Held for Investment:• Period-end loans held for investment increased by $2.7 billion to $78.1 billion as of December 31, 2024 from December 31, 2023 primarily driven by growth in our auto loan portfolio.
• Average loans held for investment decreased by $1.5 billion to $76.0 billion in 2024 compared to 2023 primarily driven by the impact of lower auto originations in the second half of 2022 and throughout 2023, partially offset by growth in our auto loan portfolio in 2024.Deposits:• Period-end deposits increased by $22.2 billion to $318.3 billion as of December 31, 2024 from December 31, 2023 primarily driven by continued growth from our national consumer banking strategy.Net Charge-Off and Delinquency Metrics:• The net charge-off rate increased by 34 bps to 2.10% in 2024 compared to 2023.
• The 30+ day delinquency rate decreased by 35 bps to 6.73% as of December 31, 2024 compared to December 31, 2023.
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Table of ContentsCommercial Banking Business
The primary sources of revenue for our Commercial Banking business are net interest income from loans and deposits and non-interest income earned from products and services provided to our clients such as capital markets, advisory services, net interchange and treasury management. Because our Commercial Banking business has loans and investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent basis. Expenses primarily consist of the provision for credit losses and operating costs.
Our Commercial Banking business generated net income from continuing operations of $1.2 billion, $691 million and $843 million in 2024, 2023 and 2022, respectively.Table 10 summarizes the financial results of our Commercial Banking business and displays selected key metrics for the periods indicated.
Table 10: Commercial Banking Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Selected income statement data:Net interest income $ 2,391 $ 2,518 $ 2,461 (5)% 2%
Non-interest income 1,210 1,002 1,129 21 (11)Total net revenue (1)3,601 3,520 3,590 2 (2)Provision for credit losses (2)8 605 415 (99) 46
Non-interest expense 2,011 2,011 2,070 — (3)
Income from continuing operations before income taxes 1,582 904 1,105 75 (18)
Income tax provision 373 213 262 75 (19)
Income from continuing operations, net of tax $ 1,209 $ 691 $ 843 75 (18)Selected performance metrics:
Average loans held for investment:Commercial and multifamily real estate $ 33,141 $ 36,448 $ 36,639 (9) (1)
Commercial and industrial 55,439 56,008 54,772 (1) 2
Total commercial banking $ 88,580 $ 92,456 $ 91,411 (4) 1Average yield on loans held for investment (1)(3)7.09 % 6.86 % 4.02 % 23bps 284bps
Average deposits $ 31,140 $ 37,411 $ 42,018 (17)% (11)%
Average deposits interest rate 2.51 % 2.68 % 0.73 % (17)bps 195bps
Net charge-offs $ 168 $ 578 $ 71 (71)% **
Net charge-off rate 0.19 % 0.62 % 0.08 % (43)bps 54bps
(Dollars in millions, except as noted) December 31, 2024 December 31, 2023 ChangeSelected period-end data:
Loans held for investment:Commercial and multifamily real estate $ 31,903 $ 34,446 (7)%
Commercial and industrial 55,272 56,042 (1)
Total commercial banking $ 87,175 $ 90,488 (4)
Nonperforming loan rate 1.39 % 0.84 % 55bpsNonperforming asset rate (4)1.39 0.84 55Allowance for credit losses (2)$ 1,400 $ 1,545 (9)%
Allowance coverage ratio 1.61% 1.71% (10)bps
Deposits $ 31,691 $ 32,712 (3)%
Loans serviced for others 52,749 52,341 1__________
(1) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.75
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(2) The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitments totaled $143 million, $158 million and $218 million as of December 31, 2024, 2023 and 2022, respectively.(3) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(4) Nonperforming assets consist of nonperforming loans and other foreclosed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and other foreclosed assets.** Not meaningful.
Key factors affecting the results of our Commercial Banking business for 2024 compared to 2023, and changes in financial condition and credit performance between December 31, 2024 and 2023 include the following:
• Net Interest Income: Net interest income decreased by $127 million to $2.4 billion in 2024 primarily driven by lower average loan and deposit balances.
• Non-Interest Income: Non-interest income increased by $208 million to $1.2 billion in 2024 primarily driven by increased fees in our capital markets business.
• Provision for Credit Losses: Provision for credit losses decreased by $597 million to $8 million in 2024 primarily driven by lower net charge-offs in our office real estate portfolio and an allowance release compared to an allowance build in 2023.
• Non-Interest Expense: Non-interest expense remained flat at $2.0 billion in 2024 compared to 2023.Loans Held for Investment:• Period-end loans held for investment decreased by $3.3 billion to $87.2 billion as of December 31, 2024 from December 31, 2023 primarily driven by customer payments outpacing originations.
• Average loans held for investment decreased by $3.9 billion to $88.6 billion in 2024 compared to 2023 primarily driven by customer payments outpacing originations.Deposits:• Period-end deposits decreased by $1.0 billion to $31.7 billion as of December 31, 2024 from December 31, 2023 primarily driven by an intentional reduction in lower margin deposit balances in the first half of the year, partially offset by growth in the second half of the year.Net Charge-Off and Nonperforming Metrics:• The net charge-off rate decreased by 43 bps to 0.19% in 2024 compared to 2023 primarily driven by lower net charge-offs in our office real estate portfolio.
• The nonperforming loan rate increased by 55 bps to 1.39% as of December 31, 2024 compared to December 31, 2023 primarily driven by credit downgrades.Other Category
Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our corporate investment securities portfolio, asset/liability management and oversight of our funds transfer pricing process. Other also includes:
• unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges and integration expenses related to the Transaction;• offsets related to certain line-item reclassifications;• residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments; and76Capital One Financial Corporation (COF)
Table of Contents• foreign exchange-rate fluctuations on foreign currency-denominated balances.Table 11 summarizes the financial results of our Other category for the periods indicated.
Table 11: Other Category Results
Year Ended December 31, Change(Dollars in millions) 2024 2023 2022 2024 vs. 2023 2023 vs. 2022Selected income statement data:Net interest loss $ (1,294) $ (1,719) $ (896) (25)% 92%
Non-interest income (loss) (77) 15 (233) ** **Total net loss (1)(1,371) (1,704) (1,129) (20) 51
Provision (benefit) for credit losses 1 1 (6) — **
Non-interest expense 527 637 154 (17) **
Loss from continuing operations before income taxes (1,899) (2,342) (1,277) (19) 83
Income tax benefit (685) (823) (617) (17) 33
Loss from continuing operations, net of tax $ (1,214) $ (1,519) $ (660) (20) 130__________
(1) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
** Not meaningful.Loss from continuing operations decreased by $305 million to a loss of $1.2 billion in 2024 compared to 2023 primarily driven by higher treasury income.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the amount of assets, liabilities, income and expenses on the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies under “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
We have identified the following accounting estimates as critical because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. Our critical accounting policies and estimates are as follows:
• Loan loss reserves
• Goodwill
• Fair value
• Customer rewards reserve
We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary, based on changing conditions.
Loan Loss ReservesWe maintain an allowance for credit losses that represents management’s current estimate of expected credit losses inherent in our credit card, consumer banking and commercial banking loans held for investment portfolios as of each balance sheet date. We also reserve for the uncollectible portion of finance charges and fees related to credit card loan receivables in the allowance for credit losses consistent with the methodology we use to estimate the allowance for credit losses on the principal portion of our credit card loan receivables. We also separately reserve for unfunded lending commitments that are not unconditionally cancellable. We recognize changes in our allowance for credit losses and reserve for unfunded lending commitments through the provision for credit losses. The allowance for credit losses was $16.3 billion as of December 31, 2024, compared to $15.3 billion as of December 31, 2023.Our allowance for credit losses and reserve for unfunded lending commitments utilize models to derive a quantitative estimate of credit losses that is supplemented with additional qualitative considerations to capture risks and uncertainties not included in the quantitative result. Our estimate of expected credit losses, for all loan and unfunded lending commitments, includes a reasonable and supportable forecast period of one year and then reverts over a one-year period to historical losses at each relevant loss component of the estimate. We use externally produced consensus estimates as inputs for our forward-looking macroeconomic forecast and consider other forecasts and sources of uncertainty to develop the quantitative component. This quantitative result is then supplemented qualitatively by management for economic uncertainty, including the consideration of alternative macroeconomic scenarios, changes and trends in loan portfolios that may not be captured in the quantitative component. These adjustments represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses.We have an established process, using analytical tools and management judgment, to determine our allowance for credit losses. Significant management judgment is required to determine the relevant information and estimation methods used to arrive at our best estimate of lifetime credit losses. Establishing the allowance on a quarterly basis involves evaluating and forecasting both credit and macroeconomic variables. The macroeconomic forecast used to inform both quantitative and qualitative components of our allowance for credit losses estimate is sensitive to certain variables, such as the U.S. Unemployment Rate, and the U.S. Real Gross Domestic Product (“U.S. Real GDP”) Growth Rate assu mptions. Our December 31, 2024 allowance assumes that the quarterly average U.S. unemployment rate is approximately 4.3% by the fourth quarter of 2025 and annual U.S. Real GDP grows by 1.8% in 2025.In addition to macroeconomic factors, many credit factors inform our allowance for credit losses, including, but not limited to, historical loss and recovery experience, recent trends in delinquencies and charge-offs, risk ratings, the impact of bankruptcy78Capital One Financial Corporation (COF)
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filings, the value of collateral underlying secured loans, account seasoning, changes in our credit evaluation, underwriting and collection management policies, seasonality, credit bureau scores, current general economic conditions, changes in the legal and regulatory environment and uncertainties in forecasting and modeling techniques used in estimating our allowance for credit losses.
We have a governance framework supported by processes and controls intended to ensure that our estimate of the allowance for credit losses is appropriate. Our governance framework provides for oversight of methods, models, qualitative adjustments, process controls and results. At least quarterly, representatives from the Finance and Risk Management organizations review and assess our allowance methodologies, key assumptions and the appropriateness of the allowance for credit losses. Groups independent of our estimation functions participate in the review and validation process. Tasks performed by these groups include periodic review of the rationale for and quantification of inputs requiring judgment as well as adjustments to results.
We have model policies, established by an independent Model Risk Office, which govern the validation of models and related supporting documentation to ensure the appropriate use of models for estimating credit losses. The Model Risk Office validates all models and requires ongoing monitoring of their performance.
In addition to the allowance for credit losses, on a quarterly basis, we review and assess our estimate of expected losses related to unfunded lending commitments that are not unconditionally cancellable which are generally in our Commercial Banking business. The factors impacting our assessment generally align with those considered in our evaluation of the allowance for credit losses for the Commercial Banking business. The reserve for losses on unfunded lending commitments is included in other liabilities on our consolidated balance sheets and changes to it are recorded through the provision for credit losses in our consolidated statements of income.Although we examine a variety of externally available data, as well as our internal loan performance data, to determine our allowance for credit losses and reserve for unfunded lending commitments, our estimation process is subject to risks and uncertainties, including a reliance on historical loss and trend information that may not be representative of current conditions and indicative of future performance as well as economic forecasts that may not align with actual future economic conditions. Accordingly, our actual credit loss experience may not be in line with our expectations. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses for each of our loan portfolio segments in “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.” We provide information on the components of our allowance, disaggregated by operating segment, and changes in our allowance in “Item 8. Financial Statements and Supplementary Data—Note 5—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.”Goodwill
Goodwill represents the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the assets acquired and liabilities assumed as of the acquisition date.Goodwill totaled $15.1 billion as of both December 31, 2024 and 2023. We did not recognize any goodwill impairment in 2024 or 2023. See “Item 8. Financial Statements and Supplementary Data—Note 7—Goodwill and Other Intangible Assets” for additional information.
We perform our goodwill impairment test annually on October 1 at a reporting unit level. We are also required to test goodwill for impairment whenever events or circumstances indicate it is more-likely-than-not that an impairment may have occurred. An impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying amount exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit. We have four reporting units: Credit Card, Auto Finance, Other Consumer Banking, and Commercial Banking.
For the purpose of our goodwill impairment testing, we calculate the carrying amount of a reporting unit using an allocated capital approach based on each reporting unit’s specific regulatory capital requirements and underlying risks. The carrying amount for a reporting unit is the sum of its respective capital requirements, goodwill and other intangibles balances. Consolidated stockholder’s equity in excess of the sum of all reporting units capital requirements that is not identified for future capital needs, such as dividends, share buybacks, or other strategic initiatives, is allocated to the reporting units and the Other category and assumed to be distributed to equity holders in future periods.Determining the fair value of a reporting unit is a subjective process that requires the use of estimates and the exercise of significant judgment. We calculate the fair value of our reporting units using a discounted cash flow (“DCF”) calculation, a79Capital One Financial Corporation (COF)
Table of Contentsform of the income approach. This DCF calculation uses projected cash flows based on each reporting unit’s internal forecast and the perpetuity growth method to calculate terminal values. Our DCF calculation requires management to make estimates about future loan, deposit and revenue growth, as well as credit losses and capital rates. These cash flows and terminal values are then discounted using discount rates based on our external cost of capital with adjustments for the risk inherent in each reporting unit. Discount rates used for our reporting units ranged from 8.4% to 12.7%, and we applied a terminal year long-term growth rate of 3.8% to all reporting units. The reasonableness of our DCF calculation is assessed by reference to a market-based approach using comparable market multiples and recent market transactions where available. The usefulness of market data is inherently limited due to the size and scope of our operations compared to most peer institutions and recent market transactions. The results of the 2024 annual impairment test indicated that the estimated fair values of the reporting units exceeded their carrying amounts by between 11% and 83%. We also compare the aggregate fair values of our reporting units to our market capitalization. Our assessment considers the level of premium expected to assume control of the Company in a market transaction including anticipated cost savings and other synergies that would be realized in a hypothetical transaction.
The results of the 2024 annual goodwill impairment test for our Commercial Banking reporting unit concluded that, while the estimated fair value of this reporting unit exceeded its carrying amount, the percentage by which the estimated fair value of this reporting unit exceeded its carrying amount was 11%. The assumptions leveraged in the valuation of each reporting unit, including the Commercial Banking reporting unit, and the related risk of changes in those assumptions are described further below.
Assumptions used in estimating the fair value of a reporting unit are judgmental and inherently uncertain. A change in the economic conditions of a reporting unit, such as declines in business performance as a result of industry or macroeconomic trends or changes in our strategy, adverse impacts to loan or deposit growth trends, decreases in revenue, increases in expenses, deterioration in a significant loan portfolio, increases in credit losses, increases in capital requirements, deterioration of market conditions, declines in long-term growth expectations, an increase in disposition activity, adverse impacts of regulatory or legislative changes or increases in the estimated cost of capital could cause the estimated fair values of our reporting units to decline in the future, and increase the risk of a goodwill impairment in a future period. We perform sensitivity analyses around certain assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.We have a governance framework supported by processes and controls intended to ensure that the accounting and disclosure for goodwill is appropriate. Our governance framework provides for oversight of assumptions, forecast inputs, methods, process controls and results.
Fair ValueFair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:Level 1: Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, DCF methodologies or similar techniques.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted prices in active markets or observable market inputs. When quoted prices and observable data in active markets are not fully available, management judgment is necessary to estimate fair value. Changes in market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value.80Capital One Financial Corporation (COF)
Table of ContentsWe have developed policies and procedures to determine when markets for our financial assets and liabilities are inactive if the level and volume of activity has declined significantly relative to normal conditions. If markets are determined to be inactive, it may be appropriate to adjust price quotes received. When significant adjustments are required to price quotes or inputs, it may be appropriate to utilize an estimate based primarily on unobservable inputs.Significant judgment may be required to determine whether certain financial instruments measured at fair value are classified as Level 2 or Level 3. In making this determination, we consider all available information that market participants use to measure the fair value of the financial instrument, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances of each instrument or instrument category, judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3. The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. We discuss changes in the valuation inputs and assumptions used in determining the fair value of our financial instruments, including the extent to which we have relied on significant unobservable inputs to estimate fair value and our process for corroborating these inputs, in “Item 8. Financial Statements and Supplementary Data—Note 17—Fair Value Measurement.”
We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control processes include review and approval of new transaction types, price verification, and review of valuation judgments, methods, models, process controls and results.
Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by these groups include verification of fair value measurements at least quarterly to determine if assigned fair values are reasonable, including comparing prices from vendor pricing services to other available market information.
Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance, provides guidance and oversight to ensure an appropriate valuation control environment. The FVC reviews and approves our fair valuations at least quarterly to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting guidance.
We have model policies, established by an independent Model Risk Office, which govern the validation of models and related supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office validates all models and requires ongoing monitoring of their performance.The fair value governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution. The VAC is chaired by the Chief Financial Officer (“CFO”) and includes other members of senior management. There were no disputes escalated to the VAC for the years ended December 31, 2024 and 2023.Customer Rewards ReserveWe offer products, primarily credit cards, which include programs that allow members to earn rewards based on account activity that can be redeemed for cash (primarily in the form of statement credits), gift cards, travel, or covering eligible charges. The amount of rewards that a customer earns varies based on the terms and conditions of the rewards program and product. The majority of our rewards do not expire and there is no limit on the amount of rewards an eligible card member can earn. Customer rewards costs, which we generally record as an offset to interchange income, are driven by various factors such as card member purchase volume, the terms and conditions of the rewards program and rewards redemption cost. We establish a customer rewards reserve that reflects management’s judgment regarding rewards earned that are expected to be redeemed and the estimated redemption cost.
We use financial models to estimate ultimate redemption rates of rewards earned by current card members based on historical redemption trends, current enrollee redemption behavior, card product type, year of program enrollment, enrollment tenure and card spend levels. Our current assumption is that the substantial majority of all rewards earned will eventually be redeemed. We use the weighted-average redemption cost during the previous twelve months, adjusted as appropriate for recent changes in redemption costs, including changes related to the mix of rewards redeemed, to estimate future redemption costs. We continually evaluate our reserve and assumptions based on developments in redemption patterns, changes to the terms and
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Table of Contentsconditions of the rewards program and other factors. While the rewards liability is sensitive to changes in assumptions for redemption rates and costs and involves management judgment, we believe portfolio characteristics and historical performance are the best indication of future reward redemption behavior and are the primary basis for our estimate. We recognized customer rewards expense of $9.0 billion, $8.2 billion and $7.6 billion in 2024, 2023 and 2022, respectively. Our customer rewards reserve, which is included in other liabilities on our consolidated balance sheets, totaled $8.2 billion and $7.4 billion as of December 31, 2024 and 2023, respectively.We have a governance framework supported by processes and controls that are intended to ensure that our rewards liability estimate is appropriate and reliable. Our governance framework provides for oversight of assumptions, inputs, methods, process controls and results. Additional controls are performed to ensure all underlying data used to derive the rewards liability is complete and accurate.ACCOUNTING CHANGES AND DEVELOPMENTSAccounting Standards Issued but Not Adopted as of December 31, 2024Standard Guidance Adoption Timing and Financial Statement ImpactsIncome Tax Disclosures
Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures
Issued December 2023
Requires entities to annually provide additional information on income tax rate reconciliations and make additional disclosures about income taxes paid.
Effective beginning with our annual period ending on December 31, 2025, with early adoption permitted. Prospective application is required and retrospective application is also permitted.
We plan to adopt this standard for the above annual period and to apply the new requirements prospectively. We are still assessing the extent of the impacts of adoption to the disclosures.Disaggregation of Income Statement ExpensesASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement ExpensesIssued November 2024Requires entities to separately disclose specific disaggregated expense categories on an annual and interim basis as well as disclose selling expenses on an annual basis.
Effective beginning with our annual period ending on December 31, 2027, with early adoption permitted. Prospective application is required and retrospective application is also permitted.
We are still assessing the extent of the impacts of adoption to the disclosures.
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CAPITAL MANAGEMENT
The level and composition of our capital are determined by multiple factors, including our consolidated regulatory capital requirements as described in more detail below and internal risk-based capital assessments such as internal stress testing. The level and composition of our capital may also be influenced by rating agency guidelines, subsidiary capital requirements, business environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business and market environments.
Capital Standards and Prompt Corrective ActionThe Company and the Bank are subject to the Basel III Capital Rules. The Basel III Capital Rules implement certain capital requirements published by the Basel Committee, along with certain provisions of the Dodd-Frank Act and other capital provisions.As a BHC with total consolidated assets of at least $250 billion but less than $700 billion and not exceeding any of the applicable risk-based thresholds, the Company is a Category III institution under the Basel III Capital Rules.
The Bank, as a subsidiary of a Category III institution, is a Category III bank. Moreover, the Bank, as an insured depository institution, is subject to PCA capital regulations.
Basel III and U.S. Capital Rules
Under the Basel III Capital Rules, we must maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4.0% and a minimum supplementary leverage ratio of 3.0%. We are also subject to the capital conservation buffer requirement and countercyclical capital buffer requirement, each as described below. Our capital and leverage ratios are calculated based on the Basel III standardized approach framework.
We have elected to exclude certain elements of AOCI from our regulatory capital as permitted for a Category III institution. For information on the recognition of AOCI in regulatory capital under the proposed changes to the Basel III Capital Rules, see “Part I—Item 1. Business—Supervision and Regulation—Prudential Regulation of Banking—Capital and Stress Testing Regulation—Basel III Finalization Proposal.”
G-SIBs that are based in the U.S. are subject to an additional CET1 capital requirement known as the “G-SIB Surcharge.” We are not a G-SIB based on the most recent available data and thus we are not subject to a G-SIB Surcharge.Stress Capital Buffer Rule
The Basel III Capital Rules require banking institutions to maintain a capital conservation buffer, composed of CET1 capital, above the regulatory minimum ratios. Under the Stress Capital Buffer Rule, the Company’s “standardized approach capital conservation buffer” includes its stress capital buffer requirement (as described below), any G-SIB Surcharge (which is not applicable to us) and the countercyclical capital buffer requirement (which is currently set at 0% ). Any determination to increase the countercyclical capital buffer generally would be effective twelve months after the announcement of such an increase, unless the Federal Banking Agencies set an earlier effective date.
The Company’s stress capital buffer requirement is recalibrated every year based on the Company’s supervisory stress test results. In particular, the Company’s stress capital buffer requirement equals, subject to a floor of 2.5%, the sum of (i) the difference between the Company’s starting CET1 capital ratio and its lowest projected CET1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the Company’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the Company’s projected CET1 capital ratio reaches its minimum under the supervisory stress test.
Based on the Company’s 2023 supervisory stress test results, the Company’s stress capital buffer requirement for the period beginning on October 1, 2023 through September 30, 2024 was 4.8%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework were 9.3%, 10.8% and 12.8%, respectively, for the period from October 1, 2023 through September 30, 2024.
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Table of ContentsBased on the Company’s 2024 supervisory stress test results, the Company’s stress capital buffer requirement for the period beginning on October 1, 2024 through September 30, 2025 is 5.5%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 10.0%, 11.5% and 13.5%, respectively, for the period from October 1, 2024 through September 30, 2025 .
The Stress Capital Buffer Rule does not apply to the Bank. Pursuant to the OCC’s capital regulations, which are only applicable to the Bank, the capital conservation buffer for the Bank continues to be fixed at 2.5%. Therefore, the Bank’s minimum capital requirements plus its capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios are 7.0%, 8.5% and 10.5%, respectively.
If the Company or the Bank fails to maintain its capital ratios above the minimum capital requirements plus the applicable capital conservation buffers, it will face increasingly strict automatic limitations on capital distributions and discretionary bonus payments to certain executive officers.
As of December 31, 2024 and 2023, respectively, the Company and the Bank each exceeded the minimum capital requirements and the capital conservation buffer requirements applicable to them, and the Company and the Bank were each “ well-capitalized. ” The “well-capitalized” standards applicable to the Company are established in the Federal Reserve’s regulations, and the “well-capitalized” standards applicable to the Bank are established in the OCC’s PCA capital requirements.
CECL Transition Rule
The Federal Banking Agencies adopted the CECL Transition Rule that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital, the CECL Transition Election. We adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the CECL Transition Election (for regulatory capital purposes) in the first quarter of 2020. Therefore, the applicable amounts presented in this Report reflect such election.
Pursuant to the CECL Transition Rule, a banking institution could elect to delay the estimated impact of adopting CECL on its regulatory capital through December 31, 2021 and then phase in the estimated cumulative impact from January 1, 2022 through December 31, 2024. For the “day 2” ongoing impact of CECL during the initial two years, the Federal Banking Agencies used a uniform “scaling factor” of 25% as an approximation of the increase in the allowance under the CECL standard compared to the prior incurred loss methodology. Accordingly, from January 1, 2020 through December 31, 2021, electing banking institutions were permitted to add back to their regulatory capital an amount equal to the sum of the after-tax “day 1” CECL adoption impact and 25% of the increase in the allowance since the adoption of the CECL standard. From January 1, 2022 through December 31, 2024, the after-tax “day 1” CECL adoption impact and the cumulative “day 2” ongoing impact were being phased in to regulatory capital at 25% per year. The following table summarizes the capital impact delay and phase in period on our regulatory capital from years 2020 to 2025.
Capital Impact Delayed Phase In Period
2020 2021 2022 2023 2024 2025
“Day 1” CECL adoption impact Capital impact delayed to 2022 25% Phased In 50% Phased In 75% Phased In Fully Phased In
Cumulative “day 2” ongoing impact 25% scaling factor as an approximation of the increase in allowance under CECL
As of December 31, 2021, we added back an aggregate amount of $2.4 billion to our regulatory capital pursuant to the CECL Transition Rule. Consistent with the rule, we have phased in 75% of this amount as of January 1, 2024. The remaining $600 million has been phased in on January 1, 2025. As of December 31, 2024, the Company’s CET1 capital ratio, reflecting the CECL Transition Rule, was 13 .5% and would have been 13 .3% excluding the impact of the CECL Transition Rule (or “on a fully phased-in basis”).
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Table of ContentsMarket Risk RuleThe “Market Risk Rule” supplements the Basel III Capital Rules by requiring institutions subject to the rule to adjust their risk-based capital ratios to reflect the market risk in their trading book. The Market Risk Rule generally applies to institutions with aggregate trading assets and liabilities equal to 10% or more of total assets or $1 billion or more. As of December 31, 2024, the Company and the Bank are subject to the Market Risk Rule. See “Market Risk Profile” below for additional information.For the description of the regulatory capital rules to which we are subject, including recent proposed amendments to these rules under the Basel III Finalization Proposal, see “Part I—Item 1. Business—Supervision and Regulation.”Table 12 provides a comparison of our regulatory capital ratios under the Basel III standardized approach, the regulatory minimum capital adequacy ratios and the applicable well-capitalized standards as of December 31, 2024 and 2023.
Table 12: Capital Ratios Under Basel III (1)
December 31, 2024 December 31, 2023
Ratio Minimum Capital Adequacy Well- Capitalized Ratio Minimum Capital Adequacy Well- CapitalizedCapital One Financial Corp:Common equity Tier 1 capital (2)
13.5 % 4.5 % N/A 12.9 % 4.5 % N/A
Tier 1 capital (3)
14.8 6.0 6.0 % 14.2 6.0 6.0 %
Total capital (4)
16.4 8.0 10.0 16.0 8.0 10.0
Tier 1 leverage (5)
11.6 4.0 N/A 11.2 4.0 N/A
Supplementary leverage (6)
9.9 3.0 N/A 9.6 3.0 N/ACONA:Common equity Tier 1 capital (2)
13.6 4.5 6.5 13.1 4.5 6.5
Tier 1 capital (3)
13.6 6.0 8.0 13.1 6.0 8.0
Total capital (4)
15.2 8.0 10.0 14.3 8.0 10.0
Tier 1 leverage (5)
10.7 4.0 5.0 10.3 4.0 5.0
Supplementary leverage (6)
9.2 3.0 N/A 8.8 3.0 N/A__________
(1) Capital requirements that are not applicable are denoted by “N/A.”(2) Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.
(3) Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.
(4) Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.
(5) Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.
(6) Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.
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Table of ContentsTable 13 presents regulatory capital under the Basel III standardized approach and regulatory capital metrics as of December 31, 2024 and 2023.Table 13: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics(Dollars in millions) December 31, 2024 December 31, 2023Regulatory capital under Basel III standardized approachCommon equity excluding AOCI $ 65,823 $ 62,710Adjustments and deductions:
AOCI, net of tax (1)1 27
Goodwill, net of related deferred tax liabilities (14,786) (14,811)
Other intangible and deferred tax assets, net of deferred tax liabilities (231) (311)
Common equity Tier 1 capital 50,807 47,615
Tier 1 capital instruments 4,845 4,845
Tier 1 capital 55,652 52,460
Tier 2 capital instruments 1,307 1,936
Qualifying allowance for credit losses 4,846 4,728
Tier 2 capital 6,153 6,664
Total capital $ 61,805 $ 59,124Regulatory capital metricsRisk-weighted assets $ 377,145 $ 369,206Adjusted average assets (2)480,794 467,553Total leverage exposure (3)559,399 546,909__________
(1) Excludes certain components of AOCI in accordance with rules applicable to Category III institutions. See “Capital Management—Capital Standards and Prompt Corrective Action—Basel III and U.S. Capital Rules” in this Report.
(2) Includes on-balance sheet asset adjustments subject to deduction from Tier 1 capital under the Basel III Capital Rules.
(3) Reflects on- and off-balance sheet amounts for the denominator of the supplementary leverage ratio as set forth by the Basel III Capital Rules.Capital Planning and Regulatory Stress Testing
We repurchased $150 million of shares of our common stock during the fourth quarter of 2024 and $553 million of shares of our common stock during the year ended 2024.
On August 28, 2024, the Federal Reserve confirmed and announced individual stress capital buffer requirements for all large banking institutions, including the Company. The Company’s final stress capital buffer requirement for the period beginning on October 1, 2024 through September 30, 2025 is 5.5%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 10.0%, 11.5% and 13.5%, respectively, for the period from October 1, 2024 through September 30 , 2025.
For the description of the regulatory capital planning rules and stress testing requirements to which we are subject, see “Part I—Item 1. Business—Supervision and Regulation.”
The Federal Reserve’s capital plan rule further provides that if a covered company determines there has been or will be a material change in its risk profile, financial condition, or corporate structure since it last submitted its capital plan, it must update and resubmit its capital plan within 30 calendar days, subject to a potential 60-day extension. We determined that our proposed acquisition of Discover constitutes a material change and submitted an updated capital plan as required by the capital plan rule. In addition, the capital plan rule provides that upon the occurrence of an event requiring resubmission, a covered company may not make any capital distribution unless it has received approval of the Federal Reserve. Accordingly, all our capital distributions are now subject to the prior approval of the Federal Reserve pending the Federal Reserve’s consideration of our resubmitted capital plan. We have received prior approval of the Federal Reserve to make certain capital distributions.
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Dividend Policy and Stock PurchasesFor the year ended December 31, 2024, we declared and paid common stock dividends of $937 million, or $2.40 per share, and preferred stock dividends of $228 million. While the Merger Agreement is in effect and until the Merger Agreement is terminated or the Transaction is completed, we are restricted from paying quarterly cash dividends on our common stock in excess of $0.60 per share per quarter.
The following table summarizes the dividends paid per share on our various preferred stock series in each quarter of 2024.
Table 14: Preferred Stock Dividends Paid Per Share
Series Description Issuance Date Per Annum Dividend Rate Dividend Frequency 2024Q4 Q3 Q2 Q1
Series I 5.000% Non-Cumulative September 11, 2019 5.000% Quarterly $12.50 $12.50 $12.50 $12.50Series J 4.800% Non-Cumulative January 31, 2020 4.800 Quarterly 12.00 12.00 12.00 12.00
Series K 4.625% Non-Cumulative September 17, 2020 4.625 Quarterly 11.56 11.56 11.56 11.56
Series L 4.375% Non-Cumulative May 4, 2021 4.375 Quarterly 10.94 10.94 10.94 10.94Series M 3.950% Fixed Rate Reset Non-Cumulative June 10, 2021 3.950% through 8/31/2026; resets 9/1/2026 and every subsequent 5 year anniversary at 5-Year Treasury Rate +3.157% Quarterly 9.88 9.88 9.88 9.88Series N 4.250% Non-Cumulative July 29, 2021 4.250 Quarterly 10.63 10.63 10.63 10.63
The declaration and payment of dividends to our stockholders, as well as the amount thereof, are subject to the discretion of our Board of Directors and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory requirements and other factors deemed relevant by the Board of Directors. For additional information related to capital distributions as a result of the capital plan resubmission, see “ Capital Management—Capital Planning and Regulatory Stress Testing ” in this Report.
As a BHC, our ability to pay dividends is largely dependent upon the receipt of dividends or other payments from our subsidiaries. The Bank is subject to regulatory restrictions that limit its ability to transfer funds to our BHC. As of December 31, 2024, funds available for dividend payments from the Bank were $8.9 billion. There can be no assurance that we will declare and pay any dividends to stockholders.
We repurchased $150 million of shares of our common stock during the fourth quarter of 2024 and $553 million of shares of our common stock during the year ended 2024. The timing and exact amount of any future common stock repurchases will depend on various factors, including regulatory approval, market conditions, opportunities for growth, our capital position and the amount of retained earnings. The Board authorized stock repurchase program does not include specific price targets, may be executed through open market purchases, tender offers, or privately negotiated transactions, including utilizing Rule 10b5-1 programs, does not have a set expiration date and may be suspended at any time. For additional information on dividends and stock repurchases, see “Capital Management—Capital Planning and Regulatory Stress Testing,” and “Part I—Item 1. Business—Supervision and Regulation— Funding and Dividends from Subsidiaries. ”
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Table of ContentsRISK MANAGEMENT
Risk Management FrameworkOur Risk Management Framework (the “Framework”) sets consistent expectations for risk management across the Company. It also sets expectations for our “Three Lines of Defense” model, which defines the roles, responsibilities and accountabilities for taking and managing risk across the Company. Accountability for overseeing an effective Framework resides with our Board of Directors either directly or through its committees.First LineIdentifies and Owns Risk
Second Line
Advises & Challenges First Line
Third LineProvides Independent Assurance
Definition Business areas that are accountable for risk and responsible for: i) generating revenue or reducing expenses; ii) supporting the business to provide products or services to customers; or iii) providing technology services for the first line. Independent Risk Management (“IRM”) and Support Functions (e.g., Human Resources, Accounting, Legal) that provide support services to the Company. Internal Audit and Credit Review.Key Responsibilities Identify, assess, measure, monitor, control, and report the risks associated with their business. IRM: Independently oversees and assesses risk taking activities for the first line of defense.Support Functions: Centers of specialized expertise that provide support services to the enterprise. Provides independent and objective assurance to the Board of Directors and senior management that the systems and governance processes are designed and working as intended.88Capital One Financial Corporation (COF)
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Our Framework sets consistent expectations for risk management across the Company and consists of the following nine elements:
Governance and Accountability
Strategy and Risk Alignment
Risk Identification
Assessment, Measurement and Response
Monitoring and Testing
Aggregation, Reporting and Escalation
Capital and Liquidity Management (including Stress Testing)
Risk Data and Enabling Technology
Culture and Talent Management
Governance and Accountability
This element of the Framework sets the foundation for the methods for governing risk taking and the interactions within and among our three lines of defense.We established a risk governance structure and accountabilities to effectively and consistently oversee the management of risks across the Company. Our Board of Directors, Chief Executive Officer and management establish the tone at the top regarding the culture of the Company, including management of risk. Management reinforces expectations at the various levels of the organization.Strategy and Risk AlignmentOur strategy is informed by and aligned with risk appetite, from development to execution. The Chief Executive Officer develops the strategy with input from the first, second, and third lines of defense, as well as the Board of Directors. The strategic planning process considers relevant changes to the Company’s overall risk profile.Our Board of Directors approves a Risk Appetite Statement for the Company to set forth the high-level principles that govern risk taking at the Company. The Risk Appetite Statement defines the Board of Directors’ tolerance for certain risk outcomes at an enterprise level and enables senior management to manage and report within these boundaries. This Risk Appetite Statement is also supported by risk category specific risk appetite statements as well as metrics and, where appropriate, Board Limits and Board Notification Thresholds.
Risk Identification
The first line of defense and certain Support Functions identify new and emerging risks, including concentration of risk, across the relevant risk categories associated with their business activities and objectives, in consultation with IRM. Risk identification also must be informed by major changes in infrastructure or organization, introduction of new products and services, acquisitions of businesses, or substantial changes in the internal or external environment.
IRM and certain Support Functions, where appropriate, provide effective challenge in the risk identification process. IRM is also responsible for identifying our material aggregate risks on an ongoing basis.89Capital One Financial Corporation (COF)
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Assessment, Measurement and Response
Management assesses risks associated with our activities. Risks identified are assessed to understand the severity of each risk and likelihood of occurrence under both normal and stressful conditions. Risk severity is measured through modeling and other quantitative estimation approaches, as well as qualitative approaches, based on management judgment. As part of the risk assessment process, the first and second lines of defense also evaluate the effectiveness of the existing control environment and mitigation strategies.
Management determines the appropriate risk response. Risks may be mitigated or accepted. Actions taken to respond to the risk include implementing new controls, enhancing existing controls, developing additional mitigation strategies to reduce the impact of the risk, and/or monitoring the risk.
Monitoring and Testing
Management periodically monitors risks to evaluate and measure how the risk is affecting our strategy and business objectives, in alignment with risk appetite, including established concentration risk limits. The scope and frequency of monitoring activities depends on the results of relevant risk assessments, as well as specific business risk operations and activities.
The first line of defense is required to evaluate the effectiveness of risk management practices and controls through testing and other activities. IRM and Support Functions, as appropriate, assess the first line of defense’s evaluation of risk management, which may include conducting effective challenge, performing independent monitoring, or conducting risk or control validations. The third line of defense provides independent assurance for first and second line risk management practices and controls.
Aggregation, Reporting and Escalation
Risk aggregation supports strategic decision making and risk management practices through collectively reporting risks across different levels of the Company and providing a comprehensive view of performance against risk appetite. Our risk aggregation processes are designed to aggregate risk information from lower levels of the business hierarchy to high levels and to aggregate risk information to determine material risk themes.
Material risks, new or emerging risks, aggregate risks, risk appetite metrics and other measures across all risk categories are reported to the appropriate governance forum no less than quarterly. Material risks are reported to the Board of Directors and senior management committees no less than quarterly.
Capital and Liquidity Management (including Stress Testing)Our capital management processes are linked to its risk management practices, including the enterprise-wide identification, assessment and measurement of risks to ensure that all relevant risks are incorporated in the assessment of the Company's capital adequacy. We use identified risks to inform key aspects of the Company’s capital planning, including the development of stress scenarios, the assessment of the adequacy of post-stress capital levels, and the appropriateness of potential capital actions considering the Company’s capital objectives. We quantify capital needs through stress testing, regulatory capital, economic capital and assessments of market considerations. In assessing its capital adequacy, we identify how and where our material risks are accounted for within the capital planning process. Monitoring and escalation processes exist for key capital thresholds and metrics to continuously monitor capital adequacy.We manage liquidity risk by applying our Liquidity Adequacy Framework (the “Liquidity Framework”). The Liquidity Framework uses internal and regulatory stress testing and the evaluation of other balance sheet metrics to confirm that we maintain a fortified balance sheet that is resilient to uncertainties that may arise as a consequence of systemic, idiosyncratic, or combined liquidity events.
Risk Data and Enabling Technology
Risk data and technology provides the basis for risk reporting and is used in decision making and to monitor and review changes to our risk profile. There are core Governance, Risk Management and Compliance systems which are used as the system of record for risks, controls, issues and events for our risk categories and supports the analysis, aggregation and reporting capabilities across the categories.90Capital One Financial Corporation (COF)
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Culture and Talent Management
The Framework must be supported with the right culture, talent and skills to enable effective risk management across the Company.
Every associate at the Company is responsible for risk management; however, associates with specific risk management skills and expertise within the first, second and third lines of defense are critical to execute appropriate risk management across the enterprise.
Risk Categories
We apply our Framework to protect the Company from the major categories of risk that we are exposed to through our business activities. We have seven major categories of risk as noted below.
Major Categories of Risk
Compliance The risk to current or anticipated earnings or capital arising from violations of laws, rules or regulations. Compliance risk can also arise from nonconformance with prescribed practices, internal policies and procedures, contractual obligations or ethical standards that reinforce those laws, rules or regulations
Credit The risk to current or projected financial condition and resilience arising from an obligor’s failure to meet the terms of any contract with the Company or otherwise perform as agreed
Liquidity The risk that the Company will not be able to meet its future financial obligations as they come due, or invest in future asset growth because of an inability to obtain funds at a reasonable price within a reasonable time
Market The risk that an institution’s earnings or the economic value of equity could be adversely impacted by changes in interest rates, foreign exchange rates or other market factors
Operational The risk of loss, capital impairment, adverse customer experience or reputational impact resulting from failure to comply with policies and procedures, failed internal processes or systems, or from external events
Reputation The risk to market value, recruitment and retention of talented associates and maintenance of a loyal customer base due to the negative perceptions of our internal and external constituents regarding our business strategies and activities
Strategic The risk of a material impact on current or anticipated earnings, capital, franchise or enterprise value arising from the Company’s competitive and market position and evolving forces in the industry that can affect that position; lack of responsiveness to these conditions; strategic decisions to change the Company’s scale, market position or operating model; or, failure to appropriately consider implementation risks inherent in the Company’s strategyWe provide an overview of how we manage our seven major categories of risk below.
Compliance Risk Management
We recognize that compliance requirements for financial institutions are increasingly complex and that there are heightened expectations from our regulators and our customers. In response, we continuously evaluate the regulatory environment and proactively adjust our compliance program to fully address these expectations.Our Compliance Management Program establishes expectations for determining compliance requirements, assessing the risk of new product offerings, creating appropriate controls and training to address requirements, monitoring for control performance, and independently testing for adherence to compliance requirements. The program also establishes regular compliance reporting to senior business leaders, the executive committee and the Board of Directors.
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Table of ContentsThe Chief Compliance Officer is responsible for establishing and overseeing our Compliance Management Program. Business areas incorporate compliance requirements and controls into their business policies, standards, processes and procedures. They regularly monitor and report on the efficacy of their compliance controls and our Compliance team periodically independently tests to validate the effectiveness of business controls.
Credit Risk ManagementWe recognize that we are exposed to cyclical changes in credit quality. Consequently, we try to ensure our credit portfolio is resilient to economic downturns. Our most important tool in this endeavor is sound underwriting. In unsecured consumer loan underwriting, we generally assume that loans will be subject to an environment in which losses are higher than those prevailing at the time of underwriting. In commercial underwriting, we generally require strong cash flow, collateral, covenants, and guarantees. In addition to sound underwriting, we continually monitor our portfolio and take steps to collect or work out distressed loans.The Chief Credit and Financial Risk Officer, in conjunction with the Chief Credit Officers, is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of our lending related transactions. Our Chief Credit Officers are responsible for evaluating the risk implications of credit strategy and the oversight of credit for both the existing portfolio and any new credit investments. They also have formal approval authority for various types and levels of credit decisions, including individual commercial loan transactions. Division Presidents within each segment are responsible for managing the credit risk within their divisions and maintaining processes to control credit risk and comply with credit policies and guidelines. In addition, the Chief Credit and Financial Risk Officer establishes policies, delegates approval authority and monitors performance for non-loan credit exposure entered into with financial counterparties or through the purchase of credit sensitive securities in our investment portfolio.
Our credit policies establish standards in five areas: customer selection, underwriting, monitoring, remediation and portfolio management. The standards in each area provide a framework comprising specific objectives and control processes. These standards are supported by detailed policies and procedures for each component of the credit process. Starting with customer selection, our goal is to generally provide credit on terms that generate above hurdle returns. We use a number of quantitative and qualitative factors to manage credit risk, including setting credit risk limits and guidelines for each of our lines of business. We monitor performance relative to these guidelines and report results and any required mitigating actions to appropriate senior management committees and our Board of Directors.See also “Credit Risk Profile” below for more information about how we manage credit risk.Liquidity Risk ManagementWe recognize that liquidity risk is embedded within our day-to-day and strategic decisions. Liquidity is essential for banks to meet customer withdrawals, account for balance sheet changes, and provide funding for growth. We have acquired and built deposit gathering businesses and actively monitor our funding concentration. We manage our liquidity risk, which is driven by both internal and external factors, centrally and establish quantitative risk limits to continually assess our liquidity adequacy.The Chief Credit and Financial Risk Officer, in conjunction with the Head of Liquidity, Market and Capital Risk Oversight, is responsible for the establishment of liquidity risk management policies and standards for governance and monitoring of liquidity risk at a corporate level. We assess liquidity strength by evaluating several different balance sheet metrics under severe stress scenarios to ensure we can withstand significant funding degradation. Results are reported to the Asset Liability Committee monthly and to the Risk Committee no less than quarterly. We also continuously monitor market and economic conditions to evaluate emerging stress conditions and to develop appropriate action plans in accordance with our Contingency Funding Plan and our Recovery Plan.
We use internal and regulatory stress testing and the evaluation of other balance sheet metrics within our Liquidity Framework to confirm we maintain a fortified balance sheet. We rely on a combination of stable and diversified funding sources, along with a stockpile of liquidity reserves, to effectively manage our liquidity risk. We maintain a sizable liquidity reserve of cash and cash equivalents, high-quality unencumbered securities and investment securities and certain loans that are either readily-marketable or pledgeable. We also continue to maintain access to secured and unsecured debt markets through regular issuance.See also “Liquidity Risk Profile” below for more information about how we manage liquidity risk.
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Market Risk Management
We recognize that interest rate and foreign exchange risk are present in our business due to the nature of our assets and liabilities. Market risk is inherent from the financial instruments associated with our business operations and activities including loans, deposits, securities, short-term borrowings, long-term debt and derivatives. We manage market risk exposure, which is principally driven by balance sheet interest rate risk, centrally and establish quantitative risk limits to monitor and control our exposure.The Chief Credit and Financial Risk Officer, in conjunction with the Head of Liquidity, Market, and Capital Risk Oversight, is responsible for the establishment of market risk management policies and standards for the governance and monitoring of market risk at a corporate level. The market risk position is calculated and analyzed against pre-established limits. We use industry accepted techniques to analyze and measure interest rate and foreign exchange risk and we perform sensitivity analysis to identify our risk exposures under a broad range of scenarios. Results are reported to the Asset Liability Committee monthly and to the Risk Committee no less than quarterly.Management is authorized to utilize financial instruments as outlined in our policy to actively manage market risk exposure. Investment securities and derivatives are the main levers for the management of interest rate risk. In addition, we also use derivatives to manage our foreign exchange risk.
Operational Risk Management
We recognize the criticality of managing operational risk on both a strategic and day-to-day basis and that there are heightened expectations from our regulators and our customers. We have implemented appropriate operational risk management policies, standards, processes and controls to enable the delivery of high quality and consistent customer experiences and to achieve business objectives in a controlled manner.The Chief Operational Risk Officer, in collaboration with the CTRO, is responsible for establishing and overseeing our Operational Risk Management Program. The program establishes practices for assessing the operational risk profile and executing key control processes for operational risks. These risks include topics such as internal and external fraud, cybersecurity and technology risk, data management, model risk, third-party management, and business continuity. Operational Risk Management and Technology Risk Management enforce these practices and delivers reporting of operational risk results to senior business leaders, the executive committee and the Board of Directors. For additional information on how we manage cybersecurity and technology risk, see “Part I—Item 1C. Cybersecurity” of this Report.Reputation Risk ManagementWe recognize that reputation risk is of particular concern for financial institutions and, increasingly, technology companies, in the current environment. Areas of concern have expanded to include company policies, practices and values and, with the growing use of social and digital platforms, public corporations face a new level of scrutiny and channels for activism and advocacy. The heightened expectations of internal and external stakeholders have made corporate culture, values and conduct pressure points for individuals and advocates voicing concerns or seeking change. We manage both strategic and tactical reputation issues and build our relationships with government officials, media, community and consumer advocates, customers and other constituencies to help strengthen the reputations of both our Company and industry. Our actions include implementing pro-customer practices in our business and serving low to moderate income communities in our market area consistent with a quality bank and an innovative technology leader. The Executive Vice President of External Affairs is responsible for managing our overall reputation risk program. Day-to-day activities are controlled by the frameworks set forth in our Reputation Risk Management Policy and other risk management policies.Strategic Risk ManagementWe recognize that strategic risk is present within our business and the Company’s strategy. We monitor risks for the impact on current or future earnings, capital growth or enterprise value arising from changes to the Company’s competitive and market positions, including as a result of evolving forces in the industry. Additionally, we monitor timely and effective responsiveness to these conditions, strategic decisions that impact the Company’s scale, market position or operating model and failure to appropriately consider implementation risks in the Company’s strategy. Potential areas of opportunity or risk inform the Company’s strategy, which is led by the Chief Executive Officer and other senior executives. The Chief Enterprise Risk Officer, in consultation with the Chief Credit and Financial Risk Officer, oversees the identification and assessment of risks associated with the Company’s strategy and the monitoring of these risks throughout the year.
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Our Strategic Risk Management Policy, processes and controls encompass an ongoing assessment of risks associated with corporate or line of business specific strategies. These risks are managed through periodic reviews, along with regular updates to senior management and the Board.
CREDIT RISK PROFILEOur loan portfolio accounts for the substantial majority of our credit risk exposure. Our lending activities are governed under our credit policies and are subject to independent review and approval. Below we provide information about the composition of our loan portfolio, key concentrations and credit performance metrics.We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “Consolidated Balance Sheets Analysis—Investment Securities” and “Item 8. Financial Statements and Supplementary Data—Note 3—Investment Securities” as well as credit risk related to derivative transactions in “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”
Primary Loan Products
We provide a variety of lending products. Our primary loan products include credit cards, auto loans and commercial lending products.• Credit cards: We originate both prime and subprime credit cards through a variety of channels. Our credit cards generally have variable interest rates. Credit card accounts are primarily underwritten using an automated underwriting system based on predictive models that we have developed. The underwriting criteria, which are customized for individual products and marketing programs, are established based on an analysis of the net present value of expected revenues, expenses and losses, subject to further analysis using a variety of stress conditions. Underwriting decisions are generally based on credit bureau information, including payment history, debt burden and credit scores, such as Fair Isaac Corporation (“FICO”) scores, and on other factors, such as applicant income. We maintain a credit card securitization program and selectively sell charged-off credit card loans.
• Auto: We originate both prime and subprime auto loans through a network of auto dealers and direct marketing. Our auto loans have fixed interest rates and loan terms of 84 months or less. Loan size limits are customized by program and are generally less than $75,000. Similar to credit card accounts, the underwriting criteria are customized for individual products and marketing programs and based on analysis of net present value of expected revenues, expenses and losses, and are subject to maintaining resilience under a variety of stress conditions. Underwriting decisions are generally based on an applicant’s income, estimated net disposable income, and credit bureau information including FICO scores, along with collateral characteristics such as loan-to-value (“LTV”) ratio. We maintain an auto securitization program.
• Commercial: We offer a range of commercial lending products, including loans secured by commercial real estate and loans to middle market commercial and industrial companies. Our commercial loans may have a fixed or variable interest rate; however, the majority of our commercial loans have variable rates. Our underwriting standards require an analysis of the borrower’s financial condition and prospects, as well as an assessment of the industry in which the borrower operates. Where relevant, we evaluate and appraise underlying collateral and guarantees. We maintain underwriting guidelines and limits for major types of borrowers and loan products that specify, where applicable, guidelines for debt service coverage, leverage, LTV ratio and standard covenants and conditions. We assign a risk rating and establish a monitoring schedule for loans based on the risk profile of the borrower, industry segment, source of repayment, the underlying collateral and guarantees, if any, and current market conditions. Although we generally retain the commercial loans we underwrite, we may syndicate positions for risk mitigation purposes, including bridge financing transactions we have underwritten. In addition, we originate and service multifamily commercial real estate loans which are sold to government-sponsored enterprises where we retain certain levels of residual risk after the loans are sold.
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Portfolio of Loans Held for InvestmentOur loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. The information presented in this section excludes loans held for sale, which totaled $202 million and $854 million as of December 31, 2024 and 2023, respectively.
Table 15 presents the maturities of our loans held for investment portfolio as of December 31, 2024. Determinations of maturities are based on scheduled repayments. Due to the revolving nature of credit card loans, we report the majority of our credit card loans as due in one year or less.Table 15: Loan Maturity ScheduleDecember 31, 2024(Dollars in millions) Due Up to 1 Year > 1 Year to 5 Years > 5 Years to 15 Years > 15 Years Total
Fixed rate:
Credit card$ 16,791 $ 396 — — $ 17,187
Consumer banking 18,129 54,204 $ 5,396 $ 53 77,782
Commercial banking 1,116 4,135 5,805 993 12,049
Total fixed-rate loans 36,036 58,735 11,201 1,046 107,018Variable rate:Credit card
145,321 — — — 145,321
Consumer banking 290 11 9 — 310
Commercial banking 12,459 53,792 8,788 87 75,126
Total variable-rate loans 158,070 53,803 8,797 87 220,757
Total loans $ 194,106 $ 112,538 $ 19,998 $ 1,133 $ 327,775
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Geographic CompositionWe market our credit card products throughout the United States, the United Kingdom and Canada. Our credit card loan portfolio is geographically diversified due to our product and marketing approach. The table below presents the geographic profile of our credit card loan portfolio as of December 31, 2024 and 2023.
Table 16: Credit Card Portfolio by Geographic Region
December 31, 2024 December 31, 2023(Dollars in millions) Amount % of Total Amount % of Total
Domestic credit card:California $ 15,978 9.8 % $ 15,167 9.8%
Texas 13,430 8.3 12,318 8.0
Florida 12,039 7.4 11,148 7.2
New York 10,010 6.2 9,578 6.2
Pennsylvania 6,299 3.9 5,824 3.8
Illinois 5,921 3.6 5,581 3.6
Ohio 5,314 3.3 4,845 3.1
New Jersey 5,097 3.1 4,702 3.0
Georgia 4,965 3.1 4,606 3.0North Carolina4,477 2.8 4,088 2.6
Other 72,088 44.3 69,809 45.2
Total domestic credit card 155,618 95.8 147,666 95.5
International card businesses:
United Kingdom 3,980 2.4 3,639 2.4
Canada 2,910 1.8 3,242 2.1
Total international card businesses 6,890 4.2 6,881 4.5
Total credit card $ 162,508 100.0 % $ 154,547 100.0%
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Table of ContentsOur auto loan portfolio is geographically diversified in the United States due to our product and marketing approach. Retail banking includes small business loans and other consumer lending products originated through our branch and café network. The table below presents the geographic profile of our auto loan and retail banking portfolios as of December 31, 2024 and 2023.
Table 17: Consumer Banking Portfolio by Geographic Region
December 31, 2024 December 31, 2023(Dollars in millions) Amount % of Total Amount % of Total
Auto:Texas $ 9,459 12.1 % $ 9,020 11.9 %
California 8,786 11.2 8,747 11.6
Florida 6,866 8.8 6,488 8.6
Pennsylvania 3,408 4.4 3,215 4.3
Ohio 3,402 4.4 3,130 4.1
Illinois 3,124 4.0 2,988 4.0
Georgia 2,962 3.8 2,971 3.9
New Jersey 2,662 3.4 2,626 3.5
Other 36,160 46.3 34,890 46.3
Total auto 76,829 98.4 74,075 98.2
Retail banking:
New York 376 0.5 417 0.6
Texas 278 0.4 297 0.4
Louisiana 198 0.2 234 0.3
New Jersey 84 0.1 94 0.1
Maryland 71 0.1 81 0.1
Florida 53 0.1 45 0.1
Other 203 0.2 194 0.2
Total retail banking 1,263 1.6 1,362 1.8
Total consumer banking $ 78,092 100.0 % $ 75,437 100.0 %
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Table of ContentsWe originate commercial and multifamily real estate loans in most regions of the United States. The table below presents the geographic profile of our commercial real estate portfolio as of December 31, 2024 and 2023.Table 18: Commercial Real Estate Portfolio by RegionDecember 31, 2024 December 31, 2023(Dollars in millions) Amount % of Total Amount % of Total
Geographic concentration: (1)Northeast $ 12,152 38.1 % $ 13,931 40.5 %
South 7,900 24.8 7,073 20.5
Pacific West 4,213 13.2 5,342 15.5
Mid-Atlantic 2,901 9.1 4,138 12.0Mountain2,536 7.9 1,910 5.5Midwest2,201 6.9 2,052 6.0
Total $ 31,903 100.0 % $ 34,446 100.0 %__________
(1) Geographic concentration is generally determined by the location of the borrower’s business or the location of the collateral associated with the loan. Northeast consists of CT, MA, ME, NH, NJ, NY, PA, RI and VT. South consists of AL, AR, FL, GA, KY, LA, MS, NC, OK, SC, TN and TX. Pacific West consists of: AK, CA, HI, OR and WA. Mid-Atlantic consists of DC, DE, MD, VA and WV. Midwest consists of: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD and WI. Mountain consists of: AZ, CO, ID, MT, NM, NV, UT and WY.98Capital One Financial Corporation (COF)
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Commercial Loans by IndustryTable 19 summarizes our commercial loans held for investment portfolio by industry classification as of December 31, 2024 and 2023. Industry classifications below are based on our interpretation of the Federal Loan Classification codes as they pertain to each individual loan.Table 19: Commercial Loans by Industry(Percentage of portfolio) December 31, 2024 December 31, 2023Industry Classification:Finance (1)
39% 31 %
Real Estate & Construction (2)
26 30Government & Education 8 8Health Care & Pharmaceuticals 4 6Commercial Services 4 4Technology, Telecommunications & Media
3 2
Oil, Gas & Pipelines3 3Other 13 16Total 100 % 100 %__________
(1) Beginning in the fourth quarter of 2024, we made certain reporting presentation changes which increased the percentage of Finance loans, and decreased the percentage of Real Estate & Construction loans and Healthcare loans, in relation to our total loans held for investment portfolio. This change was made on a prospective basis in accordance with regulatory reporting changes made to the “Consolidated Reports of Condition and Income” (FFIEC 031) non-depository financial institution definition, effective December 31, 2024.
(2) The funded balance for commercial office real estate held for investment totaled $1.8 billion, or 2.1% and $2.3 billion, or 2.5%, as of December 31, 2024 and 2023, respectively. Commercial office real estate exposure does not include loans in our healthcare real estate business secured by medical office properties and loans to office real estate investment trusts or real estate investment funds.
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Credit Risk MeasurementWe closely monitor economic conditions and loan performance trends to assess and manage our exposure to credit risk. Trends in delinquency rates are the key credit quality indicator for our credit card and retail banking loan portfolios as changes in delinquency rates can provide an early warning of changes in potential future credit losses. The key indicator we monitor when assessing the credit quality and risk of our auto loan portfolio is borrower credit scores as they provide insight into borrower risk profiles, which give indications of potential future credit losses. The key credit quality indicator for our commercial loan portfolios is our internal risk ratings as we generally classify loans that have been delinquent for an extended period of time and other loans with significant risk of loss as nonperforming. In addition to these credit quality indicators, we also manage and monitor other credit quality metrics such as level of nonperforming loans and net charge-off rates.We underwrite most consumer loans using proprietary models, which typically include credit bureau data, such as borrower credit scores, application information and, where applicable, collateral and deal structure data. We continuously adjust our management of credit lines and collection strategies based on customer behavior and risk profile changes. We also use borrower credit scores for subprime classification, for competitive benchmarking and, in some cases, to drive product segmentation decisions.Table 20 provides details on the credit scores of our domestic credit card and auto loan portfolios as of December 31, 2024 and 2023.Table 20: Credit Score Distribution(Percentage of portfolio) December 31, 2024 December 31, 2023Domestic credit card—Refreshed FICO scores: (1)Greater than 660 69 % 68 %
660 or below 31 32Total 100 % 100 %Auto — At origination FICO scores: (2)Greater than 660 54 % 53 %
621 - 660 19 20
620 or below 27 27Total 100 % 100 %
__________(1) Percentages represent period-end loans held for investment in each credit score category. Domestic Card credit scores generally represent FICO scores. These scores are obtained from one of the major credit bureaus at origination and are refreshed monthly thereafter. We approximate non-FICO credit scores to comparable FICO scores for consistency purposes. Balances for which no credit score is available or the credit score is invalid are included in the 660 or below category.
(2) Percentages represent period-end loans held for investment in each credit score category. Auto credit scores generally represent average FICO scores obtained from three credit bureaus at the time of application and are not refreshed thereafter. Balances for which no credit score is available or the credit score is invalid are included in the 620 or below category.In our commercial loan portfolio, we assign internal risk ratings to loans based on relevant information about the ability of the borrowers to repay their debt. In determining the risk rating of a particular loan, some of the factors considered are the borrower’s current financial condition, historical and projected future credit performance, prospects for support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends.We present information in the section below on the credit performance of our loan portfolio, including the key metrics we use in tracking changes in the credit quality of our loan portfolio. See “Item 8. Financial Statements and Supplementary Data—Note 4—Loans” for additional credit quality information and see “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our accounting policies for delinquent and nonperforming loans, charge-offs and loan modifications and restructurings for each of our loan categories.
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Delinquency RatesWe consider the entire balance of an account to be delinquent if the minimum required payment is not received by the customer’s due date, measured at each balance sheet date. Our 30+ day delinquency metrics include all loans held for investment that are 30 or more days past due, whereas our 30+ day performing delinquency metrics include all loans held for investment that are 30 or more days past due but are currently classified as performing and accruing interest. The 30+ day delinquency and 30+ day performing delinquency metrics are the same for domestic credit card loans, as we continue to classify these loans as performing until the account is charged off, typically when the account is 180 days past due. See “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our policies for classifying loans as nonperforming for each of our loan categories. We provide additional information on our credit quality metrics in “Business Segment Financial Performance.”
Table 21 presents our 30+ day performing delinquency rates and 30+ day delinquency rates of our portfolio of loans held for investment, by portfolio segment, as of December 31, 2024 and 2023.Table 21: 30+ Day DelinquenciesDecember 31, 2024 December 31, 202330+ Day Performing Delinquencies 30+ Day Delinquencies 30+ Day Performing Delinquencies 30+ Day Delinquencies
(Dollars in millions) Amount Rate (1)
Amount Rate (1)
Amount Rate (1)
Amount Rate (1)
Credit Card:Domestic credit card $ 7,053 4.53 % $ 7,053 4.53 % $ 6,806 4.61 % $ 6,806 4.61 %
International card businesses 311 4.52 320 4.64 321 4.67 329 4.77
Total credit card 7,364 4.53 7,373 4.54 7,127 4.61 7,135 4.62Consumer Banking:Auto 4,572 5.95 5,229 6.81 4,696 6.34 5,307 7.16
Retail banking 14 1.12 26 2.05 17 1.19 33 2.40
Total consumer banking 4,586 5.87 5,255 6.73 4,713 6.25 5,340 7.08Commercial Banking:Commercial and multifamily real estate 40 0.13 170 0.53 — — 121 0.35
Commercial and industrial 99 0.18 242 0.44 55 0.10 181 0.32
Total commercial banking 139 0.16 412 0.47 55 0.06 302 0.33
Total $ 12,089 3.69 $ 13,040 3.98 $ 11,895 3.71 $ 12,777 3.99__________
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Amount Rate (1)
Delinquency status:30 – 59 days $ 5,276 1.61 % $ 5,367 1.68 %
60 – 89 days 3,138 0.96 3,119 0.97> 90 days4,626 1.41 4,291 1.34
Total $ 13,040 3.98 % $ 12,777 3.99 %Geographic region:Domestic $ 12,720 3.88 % $ 12,448 3.89 %
International 320 0.10 329 0.10
Total $ 13,040 3.98 % $ 12,777 3.99 %__________
(1) Delinquency rates are calculated by dividing delinquency amounts by total period-end loans held for investment.102
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Table 23 summarizes loans that were 90+ days delinquent, in regards to interest or principal payments, and still accruing interest as of December 31, 2024 and 2023. These loans consist primarily of credit card accounts between 90 days and 179 days past due. As permitted by regulatory guidance issued by the FFIEC, we continue to accrue interest and fees on domestic credit card loans through the date of charge off, which is typically in the period the account becomes 180 days past due.Table 23: 90+ Day Delinquent Loans Accruing InterestDecember 31, 2024 December 31, 2023(Dollars in millions) Amount Rate (1)
Amount Rate (1)Loan category:
Credit card $ 3,711 2.28 % $ 3,499 2.26 %
Commercial banking 96 0.11 55 0.06
Total $ 3,807 1.16 $ 3,554 1.11Geographic region:Domestic $ 3,673 1.14 % $ 3,422 1.09 %
International 134 1.95 132 1.91
Total $ 3,807 1.16 $ 3,554 1.11__________
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Nonperforming Loans and Nonperforming AssetsNonperforming loans include loans that have been placed on nonaccrual status. Nonperforming assets consist of nonperforming loans, repossessed assets and other foreclosed assets. See “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our policies for classifying loans as nonperforming for each of our loan categories.
Table 24 presents our nonperforming loans, by portfolio segment, and other nonperforming assets as of December 31, 2024 and 2023. We do not classify loans held for sale as nonperforming. We provide additional information on our credit quality metrics in “Business Segment Financial Performance.”Table 24: Nonperforming Loans and Other Nonperforming Assets (1)December 31, 2024 December 31, 2023(Dollars in millions) Amount Rate Amount Rate
Nonperforming loans held for investment: (2)
Credit Card:International card businesses $ 10 0.15 % $ 9 0.13 %
Total credit card 10 0.01 9 0.01Consumer Banking:Auto 750 0.98 712 0.96
Retail banking 25 1.94 46 3.36
Total consumer banking 775 0.99 758 1.00Commercial Banking:Commercial and multifamily real estate 509 1.60 425 1.23
Commercial and industrial 701 1.27 336 0.60
Total commercial banking 1,210 1.39 761 0.84Total nonperforming loans held for investment (3)1,995 0.61 1,528 0.48Other nonperforming assets (4)65 0.02 62 0.02
Total nonperforming assets $ 2,060 0.63 $ 1,590 0.50__________(1) We recognized interest income for loans classified as nonperforming of $111 million and $91 million in 2024 and 2023, respectively.(2) Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each respective category.(3) Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was 1.16% and 0.88% as of December 31, 2024 and 2023, respectively.(4) The denominators used in calculating nonperforming asset rates consist of total loans held for investment and other nonperforming assets.104Capital One Financial Corporation (COF)
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Net Charge-OffsNet charge-offs consist of the amortized cost basis, excluding accrued interest, of loans held for investment that we determine to be uncollectible, net of recovered amounts. We charge off loans as a reduction to the allowance for credit losses when we determine the loan is uncollectible and record subsequent recoveries of previously charged off amounts as increases to the allowance for credit losses. Uncollectible finance charges and fees are reversed through revenue and certain fraud losses are recorded in other non-interest expense. Generally, costs to recover charged off loans are recorded as collection expenses as incurred and are included in our consolidated statements of income as a component of other non-interest expense. Our charge-off policy for loans varies based on the loan type. See “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our charge-off policy for each of our loan categories.
Table 25 presents our net charge-off amounts and rates, by portfolio segment, in 2024, 2023 and 2022.Table 25: Net Charge-Offs (Recoveries)
Year Ended December 31,2024 2023 2022(Dollars in millions) Amount Rate (1)
Amount Rate (1)
Amount Rate (1)Credit Card:
Domestic credit card (2)
$ 8,634 5.91 % $ 6,164 4.56 % $ 2,833 2.47 %
International card businesses 353 5.15 308 4.84 215 3.65
Total credit card 8,987 5.88 6,472 4.57 3,048 2.53Consumer Banking:Auto 1,528 2.05 1,308 1.72 784 1.00
Retail banking 65 5.11 56 3.89 70 4.24
Total consumer banking 1,593 2.10 1,364 1.76 854 1.06Commercial Banking:Commercial and multifamily real estate 87 0.26 489 1.34 — —
Commercial and industrial 81 0.15 89 0.16 71 0.13
Total commercial banking 168 0.19 578 0.62 71 0.08
Total net charge-offs $ 10,748 3.39 $ 8,414 2.70 $ 3,973 1.36
Average loans held for investment $ 317,421 $ 311,541 $ 292,238__________
(1) Net charge-off rates are calculated by dividing net charge-offs by average loans held for investment for the period for each loan category.(2) The Walmart Program Termination increased the Domestic Card net charge-off rate by 24 bps in 2024.
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Financial Difficulty Modifications to Borrowers
A financial difficulty modification (“FDM”) occurs when a modification in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, a term extension or a combination of these modifications is granted to a borrower experiencing financial difficulty.
As part of our loss mitigation efforts, we may provide short-term (one to twelve months) or long-term (greater than twelve months) modifications to a borrower experiencing financial difficulty to improve long-term collectibility of the loan and to avoid the need for repossession or foreclosure of collateral.
We consider the impact of all loan modifications, including FDMs, when estimating the credit quality of our loan portfolio and establishing allowance levels. For our Commercial Banking customers, loan modifications are also considered in the assignment of an internal risk rating.
In our Credit Card business, the majority of our FDMs receive an interest rate reduction and are placed on a fixed payment plan not exceeding 60 months. If the customer does not comply with the modified payment terms, then the credit card loan agreement may revert to its original payment terms, generally resulting in any loan outstanding being reflected in the appropriate delinquency category and charged off in accordance with our standard charge-off policy.
In our Consumer Banking business, the majority of our FDMs receive an extension, an interest rate reduction, principal reduction, or a combination of these modifications.
In our Commercial Banking business, the majority of our FDMs receive an extension. A portion of FDMs receive an interest rate reduction, principal reduction, or a combination of modifications.For more information on FDMs, see “Item 8. Financial Statements—Note 4—Loans.”Allowance for Credit Losses and Reserve for Unfunded Lending CommitmentsOur allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. We also estimate expected credit losses related to unfunded lending commitments that are not unconditionally cancellable. The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses in “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
106Capital One Financial Corporation (COF)
Table of ContentsTable 26 presents changes in our allowance for credit losses and reserve for unfunded lending commitments for 2024 and 2023, and details by portfolio segment for the provision for credit losses, charge-offs and recoveries.Table 26: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
Credit Card Consumer Banking(Dollars in millions) Domestic Card International Card Businesses Total Credit Card Auto Retail Banking Total Consumer Banking Commercial Banking TotalAllowance for credit losses:Balance as of December 31, 2022 $ 9,165 $ 380 $ 9,545 $ 2,187 $ 50 $ 2,237 $ 1,458 $ 13,240
Cumulative effects of accounting standards adoption (1)
(40) (23) (63) — — — — (63)
Balance as of January 1, 2023 9,125 357 9,482 2,187 50 2,237 1,458 13,177
Charge-offs (7,348) (439) (7,787) (2,252) (75) (2,327) (588) (10,702)
Recoveries (2)
1,184 131 1,315 944 19 963 10 2,288
Net charge-offs (6,164) (308) (6,472) (1,308) (56) (1,364) (578) (8,414)
Provision for credit losses 8,268 383 8,651 1,123 46 1,169 665 10,485
Allowance build (release) for credit losses 2,104 75 2,179 (185) (10) (195) 87 2,071
Other changes (3)
32 16 48 — — — — 48
Balance as of December 31, 2023 11,261 448 11,709 2,002 40 2,042 1,545 15,296Reserve for unfunded lending commitments:Balance as of December 31, 2022 — — — — — — 218 218
Provision (benefit) for losses on unfunded lending commitments — — — — — — (60) (60)
Balance as of December 31, 2023 — — — — — — 158 158
Combined allowance and reserve as of December 31, 2023 $ 11,261 $ 448 $ 11,709 $ 2,002 $ 40 $ 2,042 $ 1,703 $ 15,454Allowance for credit losses:Balance as of December 31, 2023 $ 11,261 $ 448 $ 11,709 $ 2,002 $ 40 $ 2,042 $ 1,545 $ 15,296
Charge-offs
(10,246) (511) (10,757) (2,674) (84) (2,758) (234) (13,749)
Recoveries (2)
1,612 158 1,770 1,146 19 1,165 66 3,001
Net charge-offs (8,634) (353) (8,987) (1,528) (65) (1,593) (168) (10,748)
Provision for credit losses 9,867 405 10,272 1,385 50 1,435 23 11,730
Allowance build (release) for credit losses (4)
1,233 52 1,285 (143) (15) (158) (145) 982
Other changes (3)
— (20) (20) — — — — (20)
Balance as of December 31, 2024 12,494 480 12,974 1,859 25 1,884 1,400 16,258Reserve for unfunded lending commitments:Balance as of December 31, 2023 — — — — — — 158 158
Provision (benefit) for losses on unfunded lending commitments — — — — — — (15) (15)
Balance as of December 31, 2024 — — — — — — 143 143
Combined allowance and reserve as of December 31, 2024 $ 12,494 $ 480 $ 12,974 $ 1,859 $ 25 $ 1,884 $ 1,543 $ 16,401__________(1) Impact from the adoption of ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures as of January 1, 2023.
(2) The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged off loans as well as additional strategies, such as litigation.
(3) Primarily represents foreign currency translation adjustments for the year ended December 31, 2024. Primarily represents foreign currency translation adjustments and the initial allowance for purchased credit-deteriorated (“PCD”) loans for the years ended December 31, 2023 and 2022. The initial allowance of PCD loans was $32 million and $10 million for the years ended December 31, 2023 and 2022, respectively.
(4) The Walmart Program Termination resulted in an allowance for credit losses build in Domestic Card of $826 million in the second quarter of 2024.
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Allowance Coverage Ratios for Specified Loan CategoryO ur allowance for credit losses increased by $962 million to $16.3 billion as of December 31, 2024 compared to 2023 and our allowance coverage ratio increased by 19 bps to 4.96% as of December 31, 2024 compared to 2023.
The ratio of the allowance for credit losses divided by total nonperforming loans held for investment of $2.0 billion and $1.5 billion as of December 31, 2024 and 2023, respectively, decreased by 186% to 815% as of December 31, 2024 from 1,001% as of December 31, 2023. Excluding the impact of the allowance for credit losses related to Domestic Card of $12.5 billion and $11.3 billion as of December 31, 2024 and 2023, respectively, this ratio decreased by 75% to 189% as of December 31, 2024 from 264% as of December 31, 2023. The decrease in the ratio for the allowance for credit losses divided by total nonperforming loans was driven by an increase in nonperforming loans partially offset by an increase in our allowance for credit losses.LIQUIDITY RISK PROFILEWe manage our funding and liquidity risk in an integrated manner in support of the current and future cash flow needs of our business. We maintained liquidity reserves of $123.8 billion and $120.7 billion as of December 31, 2024 and 2023, respectively, as shown in Table 27 below. Included in liquidity reserves are cash and cash equivalents, investment securities and FHLB borrowing capacity secured by loans.
As of December 31, 2024, we had available issuance capacity of $40.2 billion under shelf registrations associated with our credit card and auto loan securitization programs. We also maintain a shelf registration that enables us to issue an indeterminate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. Our ability to issue under each shelf registration is subject to market conditions.
Finally, as of December 31, 2024, we had access to available contingent liquidity sources totaling $102.6 billion through the prepositioning of collateral, including a portion of the investment securities included in the liquidity reserves amount in the following table, at the Federal Reserve Discount Window, the Standing Repo Facility, FHLB and the Fixed Income Clearing Corporation—Government Securities Division (“FICC—GSD”).
As of December 31, 2024 and 2023, our funding sources totaled $408.3 billion and $398.3 billion, respectively, primarily composed of consumer deposits , as shown in “Consolidated Balance Sheets Analysis—Table 6: Funding Sources Composition.”Our liquidity reserves, borrowing capacity, contingent liquidity sources and total funding sources are all discussed in more detail in the following sections.Table 27 below presents the composition of our liquidity reserves as of December 31, 2024 and 2023.Table 27: Liquidity Reserves(Dollars in millions) December 31, 2024 December 31, 2023
Cash and cash equivalents $ 43,230 $ 43,297Securities available for sale (1)83,013 79,117
FHLB borrowing capacity secured by loans 4,279 5,205
Outstanding FHLB advances and letters of credit secured by loans and investment securities (48) (50)
Other encumbrances of investment securities (6,648) (6,917)
Total liquidity reserves $ 123,826 $ 120,652________
(1) Includes securities that have been pledged or otherwise encumbered within the below Liquidity Reserves line items “Outstanding FHLB advances and letters of credit secured by loans and investment securities” and “Other encumbrances of investment securities . ”Our liquidity reserves increased by $3.2 billion to $123.8 billion as of December 31, 2024 from December 31, 2023, primarily due to increases in securities available for sale. In addition to these liquidity reserves, we maintain access to a diversified mix of funding sources as discussed in the “Borrowing Capacity” and “Funding” sections below. See “Risk Management” for additional information on our management of liquidity risk.
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Liquidity Coverage RatioWe are subject to the LCR Rule as implemented by the Federal Reserve and the OCC. The LCR Rule requires each of the Company and the Bank to calculate its respective LCR daily. It also requires the Company to publicly disclose, on a quarterly basis, its LCR, certain related quantitative liquidity metrics, and a qualitative discussion of its LCR. Our average LCR during the fourth quarter of 2024 was 155%, which exceeded the LCR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.Net Stable Funding RatioWe are subject to the NSFR Rule as implemented by the Federal Reserve and the OCC. The NSFR Rule requires each of the Company and the Bank to maintain an NSFR of 100% on an ongoing basis. It also requires the Company to publicly disclose, on a semi-annual basis each second and fourth quarter, its NSFR, certain related quantitative liquidity metrics and qualitative discussion of its NSFR. Our average NSFR for each of the third and fourth quarter of 2024 was 135%, which exceeded the NSFR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of the relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.Borrowing CapacityWe maintain a shelf registration with the SEC so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. There is no limit under this shelf registration to the amount or number of such securities that we may offer and sell, subject to market conditions. In addition, we also maintain a shelf registration associated with our credit card securitization trust that allows us to periodically offer and sell up to $30.0 billion of securitized debt obligations and a shelf registration associated with our auto loan securitization trusts that allows us to periodically offer and sell up to $25.0 billion of securitized debt obligations. The registered amounts under these shelf registration statements are subject to continuing review and change in the future, including as part of the routine renewal process. As of December 31, 2024, we had $21.6 billion and $18.6 billion of available issuance capacity in our credit card and auto loan securitization programs, respectively.
In addition to our issuance capacity under the shelf registration statements, we also have collateral pledged to support our access to FHLB advances, the Federal Reserve Discount Window, the Standing Repo Facility and FICC—GSD general collateral financing repurchase agreement service. For each of these programs, the ability to borrow utilizing these sources is dependent on meeting the respective membership requirements. Our borrowing capacity in each program is a function of the collateral the Bank has posted with each counterparty, including any respective haircuts applied to that collateral.
As of December 31, 2024, we pledged loans and securities to the FHLB to secure a maximum borrowing capacity of $35.1 billion, of which $48 million was used. Our FHLB membership is supported by our investment in FHLB stock of $18 million as of both December 31, 2024 and 2023.
As a member of FICC—GSD, we have $20.8 billion of readily available borrowing capacity secured by securities from our investment portfolio as of December 31, 2024. Our FICC—GSD membership is supported by our investment in Depository Trust and Clearing Corporation (“DTCC”) common stock of $412 thousand and $375 thousand as of December 31, 2024 and 2023, respectively.
As of December 31, 2024, we pledged loans to secure a borrowing capacity of $46.7 billion under the Federal Reserve Discount Window. Our membership with the Federal Reserve is supported by our investment in Federal Reserve stock, which totaled $1.3 billion as of both December 31, 2024 and 2023.
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DepositsTable 28 provides a comparison of the average balance, interest expense and average deposits interest rate for December 31, 2024, 2023 and 2022.Table 28: Deposits Composition and Average Deposits Interest Rates
Year Ended December 31,2024 2023 2022(Dollars in millions) Average Balance Interest Expense Average Deposits Interest Rate Average Balance Interest Expense Average Deposits Interest Rate Average Balance Interest Expense Average Deposit Interest Rate
Interest-bearing checking accounts (1)$ 34,904 $ 544 1.56 % $ 41,555 $ 797 1.92 % $ 48,291 $ 312 0.65 %Saving deposits (2)211,120 7,083 3.36 197,896 5,353 2.71 202,454 1,628 0.80
Time deposits 78,273 3,866 4.94 74,286 3,339 4.49 26,463 595 2.25
Total interest-bearing deposits $ 324,297 $ 11,493 3.54 $ 313,737 $ 9,489 3.02 $ 277,208 $ 2,535 0.91__________
(1) Includes negotiable order of withdrawal accounts.
(2) Includes money market deposit accounts.The FDIC limits the acceptance of brokered deposits to well-capitalized insured depository institutions and, with a waiver from the FDIC, to adequately-capitalized institutions. The Bank was well-capitalized, as defined under the federal banking regulatory guidelines, as of both December 31, 2024 and 2023. See “Part I—Item 1. Business—Supervision and Regulation” for additional information. We provide additional information on the composition of deposits in “Consolidated Balance Sheets Analysis—Table 6: Funding Sources Composition” and in “Item 8. Financial Statements and Supplementary Data—Note 9—Deposits and Borrowings.”FundingOur primary source of funding comes from insured retail deposits, as they are a relatively stable and lower cost source of funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes and securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase and FHLB advances secured by certain portions of our loan and securities portfolios. A key objective in our use of these markets is to maintain access to a diversified mix of wholesale funding sources. See “Consolidated Balance Sheets Analysis—Table 6: Funding Sources Composition” for additional information on our primary sources of funding.In the normal course of business, we enter into various contractual obligations that may require future cash payments that affect our short-term and long-term liquidity and capital resource needs. Our future cash outflows primarily relate to deposits, borrowings and operating leases. The actual timing and amounts of future cash payments may vary over time due to a number of factors, such as early debt redemptions and changes in deposit balances.110Capital One Financial Corporation (COF)
Table of ContentsAs of December 31, 2024 and 2023, we held $64.9 billion and $64.2 billion, respectively, of estimated uninsured deposits. These amounts were primarily comprised of checking and savings deposits. These estimated uninsured deposits comprised approximately 18% of our total deposits as of both December 31, 2024 and 2023. We estimate our uninsured amounts based on methodologies and assumptions used for our “Consolidated Reports of Condition and Income” (FFIEC 031) filed with the Federal Banking Agencies, adjusted to exclude intercompany balances and cash collateral received on certain derivative contracts which are not presented within deposits on our consolidated balance sheet.
Table 29 presents, by contractual maturity, the estimated uninsured portion of total time deposits as of December 31, 2024 and 2023. Our funding and liquidity management activities factor in the expected maturities of these deposits.
Table 29: Amount of Uninsured Time Deposits by Contractual Maturity 1
December 31, 2024 December 31, 2023(Dollars in millions) Amount % of Total Amount % of TotalUp to three months $ 4,619 45.6 % $ 4,784 53.2 %
> 3 months to 6 months 1,675 16.6 537 6.0
> 6 months to 12 months 2,596 25.6 2,095 23.3
> 12 months 1,230 12.2 1,577 17.5
Total $ 10,120 100.0 % $ 8,993 100.0 %__________(1) Some customers have time deposits in excess of the federal deposit insurance limit, making a portion of the deposit uninsured. As of December 31, 2024 and 2023, the total time deposit amount with some portion in excess of the insured amount was $15.2 billion and $15.8 billion, respectively.Short-Term Borrowings and Long-Term Debt
We access the capital markets to meet our funding needs through the issuance of senior and subordinated notes, securitized debt obligations and federal funds purchased and securities loaned or sold under agreements to repurchase. In addition, we have access to short-term and long-term FHLB advances secured by certain investment securities, multifamily real estate loans and commercial real estate loans.Our short-term borrowings, which include those borrowings with an original contractual maturity of one year or less, typically consist of federal funds purchased, securities loaned or sold under agreements to repurchase or short-term FHLB advances, and do not include the current portion of long-term debt. Our short-term borrowings increased by $24 million to $562 million as of December 31, 2024 from December 31, 2023 driven by an increase in repurchase agreements.
Our long-term funding, which primarily consists of securitized debt obligations and senior and subordinated notes, decreased by $4.3 billion to $45.0 billion as of December 31, 2024 from December 31, 2023 primarily driven by net maturities of securitized debt obligations. We provide more information on our securitization activity in “Item 8. Financial Statements and Supplementary Data—Note 6—Variable Interest Entities and Securitizations” and on our borrowings in “Item 8. Financial Statements and Supplementary Data—Note 9—Deposits and Borrowings.”
The following table summarizes issuances of securitized debt obligations, senior and subordinated notes, long term FHLB advances and their respective maturities or redemptions for the years ended December 31, 2024, 2023 and 2022.
Table 30: Long-Term Debt Funding Activities
Issuances Maturities/Redemptions
Year Ended December 31, Year Ended December 31,
(Dollars in millions) 2024 2023 2022 2024 2023 2022
Securitized debt obligations $ 1,810 $ 3,300 $ 9,750 $ 5,828 $ 2,483 $ 7,060
Senior and subordinated notes 4,000 8,250 9,300 4,411 8,436 3,561
FHLB advances — — 12,000 — — 12,000
Total $ 5,810 $ 11,550 $ 31,050 $ 10,239 $ 10,919 $ 22,621
111Capital One Financial Corporation (COF)
Table of ContentsCredit RatingsOur credit ratings impact our ability to access capital markets and our borrowing costs. For more information, see “Part I—Item 1A. Risk Factors”— “A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.”
Table 31 provides a summary of the credit ratings for the senior unsecured long-term debt of Capital One Financial Corporation and CONA as of December 31, 2024 and 2023.Table 31: Senior Unsecured Long-Term Debt Credit RatingsDecember 31, 2024 December 31, 2023Capital One Financial Corporation CONA Capital One Financial Corporation CONA
Moody’s Baa1 A3 Baa1 A3
S&P BBB BBB+ BBB BBB+
Fitch A- A A- AAs of February 11, 2025 Standard & Poor’s (“S&P”) and Fitch Ratings (“Fitch”) have our credit ratings on a stable outlook. Following the Company’s February 19, 2024 announcement of its agreement to acquire Discover, Moody’s Investors Service (“Moody’s”) placed our credit ratings on review for a downgrade. Moody’s said its review for downgrade may continue until the Transaction has been completed.Other Commitments
In the normal course of business, we enter into other contractual obligations that may require future cash payments that affect our short-term and long-term liquidity and capital resource needs. Our other contractual obligations include lending commitments, leases, purchase obligations and other contractual arrangements.As of December 31, 2024 and 2023, our total unfunded lending commitments were $458.1 billion and $441.3 billion, respectively, consisting of credit card lines, loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios and applying the same credit standards for all of our credit activities. For additional information, refer to “Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others” in this Report.
Our primary involvement with leases is in the capacity as a lessee where we lease premises to support our business. The majority of our leases are operating leases of office space, retail bank branches and cafés. Our operating leases expire at various dates through 2071, although some have extension or termination options, and we assess the likelihood of exercising such options. If it is reasonably certain that we will exercise the options, then we include the impact in the measurement of our right-of-use assets and lease liabilities. As of both December 31, 2024 and 2023, we had $1.5 billion in aggregate operating lease obligations, of which $235 million will be due the following 12 months. We provide more information on our lease activity in “Item 8. Financial Statements and Supplementary Data—Note 8—Premises, Equipment and Leases.”
We have enforceable and legally binding purchase obligations for goods and services such as data management, media and other software and third-party services. As of December 31, 2024 and 2023, we had $4.0 billion and $789 million, respectively, in aggregate purchase obligations. This increase is mainly due to recently renewed commitments for certain long term purchase obligations for goods and services.We also enter into various contractual arrangements that may require future cash payments, including short-term obligations such as trade payables, commitments to fund certain equity investments, obligations for pension and post-retirement benefit plans, and representation and warranty reserves. These arrangements are discussed in more detail in “Item 8. Financial Statements and Supplementary Data—Note 6—Variable Interest Entities and Securitizations,” “Item 8. Financial Statements and Supplementary Data—Note 15—Employee Benefit Plans” and “Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”112
Capital One Financial Corporation (COF)
Table of ContentsMARKET RISK PROFILE
Our primary market risk exposures include interest rate risk, foreign exchange risk and commodity pricing risk. We are exposed to market risk primarily from the following operations and activities:
• Traditional banking activities of deposit gathering and lending;
• Asset/liability management activities including the management of investment securities, short-term and long-term borrowings and derivatives;• Foreign operations in the U.K. and Canada within our Credit Card business; and• Customer accommodation activities within our Commercial Banking business.
We have enterprise-wide risk management policies and limits, approved by our Board of Directors, which govern our market risk management activities. Our objective is to manage our exposure to market risk in accordance with these policies and limits based on prevailing market conditions and long-term expectations. We provide additional information below about our primary sources of market risk, our market risk management strategies and the measures that we use to evaluate these exposures.
Interest Rate Risk
Interest rate risk represents exposure to financial instruments whose values vary with the level or volatility of interest rates. We are exposed to interest rate risk primarily from the differences in the timing between the maturities or repricing of assets and liabilities. We manage our interest rate risk primarily by entering into interest rate swaps and other derivative instruments which could include caps, floors, options, futures and forward contracts.We use various industry standard market risk measurement techniques and analyses to measure, assess and manage the impact of changes in interest rates on our net interest income and our economic value of equity and changes in foreign exchange rates on our non-dollar-denominated funding and non-dollar equity investments in foreign operations.Net Interest Income SensitivityOur net interest income sensitivity measure estimates the impact of hypothetical instantaneous movements in interest rates relative to our baseline interest rate forecast on our projected 12-month net interest income. Net interest income sensitivity metrics are derived using the following key assumptions:
• As of December 31, 2024, our metrics assume a market implied baseline interest rate projection for the upper limit of the Federal Funds Target Rate of 4.00% at both December 31, 2025 and 2026.• In addition to our existing assets, liabilities and derivative positions, we incorporate expected future business growth assumptions. These assumptions include loan and deposit growth, pricing, plans for projected changes in our funding mix and our securities and cash position from our internal corporate outlook that is used in our financial planning process.
• The analysis assumes this forecast of expected future business growth remains unchanged between the baseline rate forecast and rate shock scenarios, including no changes to our interest rate risk management activities like securities and hedging actions.
• We incorporate the dynamic nature of deposit re-pricing, which includes pricing lags and changes in deposit beta and mix as interest rates change, and the prepayment sensitivity of our mortgage securities to the level of interest rates. In our models, deposit betas and mortgage security prepayments vary dynamically based on the level of interest rates and by product type. In the contexts used in this section, “beta” refers to the change in deposit rate paid relative to the change in the federal funds rate.• In instances where an interest rate scenario would result in a rate less than 0%, we assume a rate of 0% for that scenario. This assumption applies only to jurisdictions that do not have a practice of employing negative policy rates. In jurisdictions that have negative policy rates, we do not floor interest rates at 0%.
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Table of ContentsAt the current level of interest rates, our projected 12-month net interest income is expected to increase in higher rate scenarios and decrease in lower rate scenarios. The decrease in lower rate scenarios is driven by lower interest income from our assets, including floating rate credit card and commercial loans, being partially offset by lower interest expense from our deposits and other liabilities, net of our interest rate hedges. Our 12-month net interest income sensitivity was largely unchanged as compared to December 31, 2023.Economic Value of Equity Sensitivity
Our economic value of equity sensitivity measure estimates the impact of hypothetical instantaneous movements in interest rates on the net present value of our assets and liabilities, including derivative exposures. Economic value of equity sensitivity metrics are derived using the following key assumptions:• As of December 31, 2024, our metrics assume a market implied baseline interest rate projection for the upper limit of the Federal Funds Target Rate of 4.00% at both December 31, 2025 and 2026.• The analysis includes only existing assets, liabilities and derivative positions and does not incorporate business growth assumptions or projected balance sheet changes.
• Similar to our net interest income sensitivity measure, we incorporate the dynamic nature of deposit repricing and attrition, which includes pricing lags and changes in deposit beta as interest rates change and the prepayment sensitivity of our mortgage securities to the level of interest rates. In our models, deposit betas and mortgage security prepayments vary dynamically based on the level of interest rates and by product type.• Balance attrition assumptions for loans, including credit card, auto and commercial loans, remain unchanged between the baseline interest rate forecast and interest rate shock scenarios as those loans are mainly floating rate or shorter duration fixed rate loans and hence paydowns have a low sensitivity to the level of interest rates.• For assets and liabilities with embedded optionality, such as mortgage securities and deposit balances, we utilize Monte Carlo simulations to assess economic value with industry-standard term structure modeling of interest rates.
• Our calculations of net present value apply appropriate spreads over the benchmark yield curve for select assets and liabilities to capture the inherent risks (including credit risk) to discount expected interest and principal cash flows.
• In instances where an interest rate scenario would result in a rate less than 0%, we assume a rate of 0% for that scenario. This assumption applies only to jurisdictions that do not have a practice of employing negative policy rates. In jurisdictions that have negative policy rates, we do not floor interest rates at 0%.Our current economic value of equity sensitivity profile demonstrates that our economic value of equity decreases in higher interest rate scenarios and increases in lower interest rate scenarios. The decrease in higher rate scenarios is due to the declines in the projected value of our fixed rate assets being only partially offset by corresponding movements in the projected value of our deposits and other liabilities. The pace of economic value of equity decrease is larger for the +200 bps scenario as our deposits are assumed to reprice more rapidly in higher interest rate environments. Our current economic value of equity sensitivity decreased modestly in higher rate scenarios while remaining largely unchanged for lower rate scenarios as compared to December 31, 2023. The decrease in economic value of equity sensitivity in higher rate scenarios is mainly driven by modeling enhancements made to our deposit balance attrition forecast assumptions. The enhancement modestly increased the projected average life (and duration) of our deposit balances. In higher rate scenarios, the value of these deposits increased more due to longer duration, which provided modestly more offset to the decline in value of fixed-rate assets in these higher rate scenarios.
114Capital One Financial Corporation (COF)
Table of ContentsTable 32 shows the estimated percentage impact on our projected baseline net interest income and our current economic value of equity calculated under the methodology described above as of December 31, 2024 and 2023.Table 32: Interest Rate Sensitivity AnalysisDecember 31, 2024 December 31, 2023Estimated impact on projected baseline net interest income:+200 basis points 1.3 % 0.7 %
+100 basis points 0.8 0.8
+50 basis points 0.4 0.4
–50 basis points (0.4) (0.5)
–100 basis points (0.8) (0.9)
–200 basis points (1.9) (2.0)Estimated impact on economic value of equity:+200 basis points (6.3) (8.4)
+100 basis points (3.0) (3.7)
+50 basis points (1.4) (1.8)
–50 basis points 1.3 1.6
–100 basis points 2.5 2.9
–200 basis points 3.9 4.0In addition to these industry standard measures, we also consider the potential impact of alternative interest rate scenarios, such as larger rate shocks, higher than +/- 200 bps, as well as steepening and flattening yield curve scenarios in our internal interest rate risk management decisions. We also regularly review the sensitivity of our interest rate risk metrics to changes in our key modeling assumptions, such as our loan and deposit balance forecasts, mortgage prepayments and deposit repricing.
Limitations of Market Risk Measures
The interest rate risk models that we use in deriving these measures incorporate contractual information, internally-developed assumptions and proprietary modeling methodologies, which project borrower and depositor behavior patterns in certain interest rate environments. Other market inputs, such as interest rates, market prices and interest rate volatility, are also critical components of our interest rate risk measures. We regularly evaluate, update and enhance these assumptions, models and analytical tools as we believe appropriate to reflect our best assessment of the market environment and the expected behavior patterns of our existing assets and liabilities.
There are inherent limitations in any methodology used to estimate the exposure to changes in market interest rates. The sensitivity analysis described above contemplates only certain movements in interest rates and is performed at a particular point in time based on our existing balance sheet and, in some cases, expected future business growth and funding mix assumptions. The strategic actions that management may take to manage our balance sheet may differ significantly from our projections, which could cause our actual earnings and economic value of equity sensitivities to differ substantially from the above sensitivity analysis.
For further information on our interest rate exposures, see “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”115Capital One Financial Corporation (COF)
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Foreign Exchange RiskForeign exchange risk represents exposure to changes in the values of current holdings and future cash flows denominated in other currencies. We are exposed to foreign exchange risk primarily from the intercompany funding denominated in pound sterling (“GBP”) and the Canadian dollar (“CAD”) that we provide to our businesses in the U.K. and Canada and net equity investments in those businesses. We are also exposed to foreign exchange risk due to changes in the dollar-denominated value of future earnings and cash flows from our foreign operations and from our Euro (“EUR”)-denominated borrowings.
Our non-dollar denominated intercompany funding and EUR-denominated borrowings expose our earnings to foreign exchange transaction risk. We manage these transaction risks by using forward foreign currency derivatives and cross-currency swaps to hedge our exposures. We measure our foreign exchange transaction risk exposures by applying a 1% U.S. dollar appreciation shock against the value of the non-dollar denominated intercompany funding and EUR-denominated borrowings and their related hedges, which shows the impact to our earnings from foreign exchange risk. Our nominal intercompany funding outstanding was 1.3 billion GBP and 973 million GBP as of December 31, 2024 and 2023, respectively, and 1.4 billion CAD and 1.6 billion CAD as of December 31, 2024 and 2023, respectively. Our nominal EUR-denominated borrowings outstanding were 505 million EUR and 1.3 billion EUR as of December 31, 2024 and 2023, respectively.
Our non-dollar equity investments in foreign operations expose our balance sheet and capital ratios to translation risk in AOCI. We manage our translation risk by entering into foreign currency derivatives designated as net investment hedges. We measure these exposures by applying a 30% U.S. dollar appreciation shock, which we believe approximates a significant adverse shock over a one-year time horizon, against the value of the equity invested in our foreign operations net of related net investment hedges where applicable. Our gross equity exposures in our U.K. and Canadian operations were 2.2 billion GBP as of both December 31, 2024 and 2023, and 2.6 billion CAD and 2.4 billion CAD as of December 31, 2024 and 2023, respectively.
As a result of our derivative management activities, we believe our net exposure to foreign exchange risk is minimal. For m ore information, see “ Item 8. Financial Statements and Supplementary Data —Note 10—Derivative Instruments and Hedging Activities” and “ Item 8. Financial Statements and Supplementary Data —Note 11—Stockholders’ Equity.”
Risk related to Customer Accommodation DerivativesWe offer interest rate, commodity and foreign currency derivatives as an accommodation to our customers within our Commercial Banking business. We offset the majority of the market risk of these customer accommodation derivatives by entering into offsetting derivatives transactions with other counterparties. We use value-at-risk (“VaR”) as the primary method to measure the market risk in our customer accommodation derivative activities on a daily basis. VaR is a statistical risk measure used to estimate the potential loss from movements observed in the recent market environment. We employ a historical simulation approach using the most recent 500 business days and use a 99% confidence level and a holding period of one business day. As a result of offsetting our customer exposures with other counterparties, we believe that our net exposure to market risk in our customer accommodation derivatives is minimal. For further information on our risk related to customer accommodation derivatives, see “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”116Capital One Financial Corporation (COF)
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SUPPLEMENTAL TABLES
Table A—Net Charge-Offs
Year Ended December 31,(Dollars in millions) 2024 2023 2022
Average loans held for investment $ 317,421 $ 311,541 $ 292,238
Net charge-offs 10,748 8,414 3,973
Net charge-off rate 3.39 % 2.70 % 1.36 %Table B— Reconciliation of Non-GAAP MeasuresThe following non-GAAP measure consists of our adjusted results that we believe helps investors and users of our financial information understand the effect of adjusting items on our selected reported results; however, it may not be comparable to similarly-titled measures reported by other companies. This adjusted result provides alternate measurements of our operating performance, both for the current period and trends across multiple periods. The following table presents reconciliations of the non-GAAP measure to the applicable amounts measured in accordance with U.S. GAAP. The non-GAAP measure below should not be viewed as a substitute for reported results determined in accordance with U.S. GAAP.
December 31,
(Dollars in millions, except as noted) 2024 2023 2022
Adjusted operating efficiency ratio:
Operating expense (U.S. GAAP) $ 16,924 $ 16,307 $ 15,146
Discover integration expenses (234) — —
FDIC special assessment (41) (289) —
Legal reserve activity (75) — —
Insurance recoveries and legal reserve activity — — 177
Restructuring charges — — (72)
Adjusted operating expense (non-GAAP) $ 16,574 $ 16,018 $ 15,251
Total net revenue (U.S. GAAP) $ 39,112 $ 36,787 $ 34,250
Walmart program agreement termination contra revenue impact 27 — —
Adjusted net revenue (non-GAAP) $ 39,139 $ 36,787 $ 34,250
Operating efficiency ratio (U.S. GAAP)
43.27% 44.33% 44.22%
Impact of adjustments noted above (92)bps (79) bps 31bps
Adjusted operating efficiency ratio (non-GAAP) 42.35% 43.54% 44.53%The following non-GAAP measures consist of TCE, tangible assets and metrics computed using these amounts, which include tangible book value per common share, return on average tangible assets, return on average TCE and TCE ratio. We consider these metrics to be key financial performance measures that management uses in assessing capital adequacy and the level of returns generated. While these non-GAAP measures are widely used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies, they may not be comparable to similarly-titled measures reported by other companies. The following table presents reconciliations of these non-GAAP measures to the applicable amounts measured in accordance with U.S. GAAP. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with U.S. GAAP.117
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Table of ContentsDecember 31,(Dollars in millions, except as noted) 2024 2023 2022Tangible Common Equity (Period-End):Stockholders’ equity $ 60,784 $ 58,089 $ 52,582Goodwill and other intangible assets (1)(15,157) (15,289) (14,902)
Noncumulative perpetual preferred stock (4,845) (4,845) (4,845)
Tangible common equity $ 40,782 $ 37,955 $ 32,835Tangible Assets (Period-End):Total assets $ 490,144 $ 478,464 $ 455,249Goodwill and other intangible assets (1)(15,157) (15,289) (14,902)
Tangible assets $ 474,987 $ 463,175 $ 440,347Tangible Common Equity (Average):Stockholders’ equity $ 59,799 $ 55,195 $ 55,125Goodwill and other intangible assets (1)(15,237) (15,207) (14,905)
Noncumulative perpetual preferred stock (4,845) (4,845) (4,845)
Tangible common equity $ 39,717 $ 35,143 $ 35,375Tangible Assets (Average):Total assets $ 480,451 $ 467,807 $ 440,538Goodwill and other intangible assets (1)(15,237) (15,207) (14,905)
Tangible assets $ 465,214 $ 452,600 $ 425,633TCE Ratio:Tangible common equity (period-end) $ 40,782 $ 37,955 $ 32,835
Tangible assets (period-end) 474,987 463,175 440,347TCE Ratio (2)8.6% 8.2% 7.5%Tangible Book Value per Share:Tangible common equity (period-end) $ 40,782 $ 37,955 $ 32,835
Outstanding Common Shares 381.2 380.4 381.3Tangible book value per common share (period-end) (3)$ 106.97 $ 99.78 $ 86.11Return on Tangible Assets (Average):Net income $ 4,750 $ 4,887 $ 7,360
Tangible assets (Average) 465,214 452,600 425,633Return on tangible assets (4)1.02% 1.08% 1.73%Return on Tangible Common Equity (Average):Net income available to common stockholders $ 4,445 $ 4,582 $ 7,044
Tangible common equity (Average) 39,717 35,143 35,375Return on tangible common equity (5)11.18% 13.04% 19.91%__________
(1) Includes impact of related deferred taxes.
(2) TCE ratio is a non-GAAP measure calculated based on TCE divided by period-end tangible assets.
(3) Tangible book value per common share is a non-GAAP measure calculated based on TCE divided by common shares outstanding.(4) Return on average tangible assets is a non-GAAP measure calculated based on annualized net income (loss) from continuing operations, net of tax, for the period divided by average tangible assets for the period.
(5) Return on average tangible common equity is a non-GAAP measure calculated based on annualized net income (loss) available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average TCE.
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Table of ContentsGlossary and Acronyms2004 Plan: The Amended and Restated 2004 Stock Incentive Plan.
2019 Cybersecurity Incident: The unauthorized access by an outside individual who obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers that we announced on July 29, 2019.
2022 Call Report: Consolidated Reports of Condition and Income, (“FFIEC 031”) as of December 31, 2022.
Allowance coverage ratio: Allowance for credit losses as a percentage of loans held for investment.Amortized cost: The amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, write-offs, foreign exchange and fair value hedge accounting adjustments.AML Act: Anti-Money Laundering Act of 2020, enacted as part of the National Defense Authorization Act, requires the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to issue a number of rules that will update and expand the BSA’s regulatory requirements.Annual Report: References to “this Report” or our “2024 Form 10-K” or “2024 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.Bank: CONA, Capital One Financial Corporation’s principal operating subsidiary.
Basel Committee: The Basel Committee on Banking Supervision.
Basel III Capital Rules: The regulatory capital requirements established by the Federal Banking Agencies in July 2013 to implement the Basel III capital framework developed by the Basel Committee as well as certain Dodd-Frank Act and other capital provisions.
Basel III Finalization Proposal: The notice of proposed rulemaking released by the Federal Banking Agencies on July 27, 2023 to revise the Basel III Capital Rules applicable to banking organizations with total assets of $100 billion or more and their subsidiary depository institutions.
Basel III standardized approach: The Basel III Capital Rules modified Basel I to create the Basel III standardized approach.BHC Act:Capital One Canada: Capital One Bank (Canada Branch).
Capital One or the Company: Capital One Financial Corporation and its subsidiaries.Carrying value (with respect to loans ) : The amount at which a loan is recorded on the consolidated balance sheets. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For credit card loans, the carrying value also includes interest that has been billed to the customer, net of any related reserves. Loans held for sale are recorded at either fair value (if we elect the fair value option) or at the lower of cost or fair value.CECL: In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This ASU requires an impairment model (known as the CECL model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. This guidance was effective for us on January 1, 2020.CECL Transition Election: The optional five-year transition period provided to banking institutions to phase in the impact of the CECL standard on their regulatory capital.
119Capital One Financial Corporation (COF)
Table of ContentsCECL Transition Rule: A rule adopted by the Federal Banking Agencies and effective in 2020 that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital.CODM : The Chief Operating Decision Maker for each of our business segments.
Common equity Tier 1 (“CET1”) capital: CET1 capital primarily includes qualifying common shareholders’ equity, retained earnings and certain AOCI amounts less certain deductions for goodwill, intangible assets, and certain deferred tax assets.
CONA: Capital One, National Association, one of our wholly-owned subsidiaries, which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.
CONA Bank Merger: The merger of Discover Bank, a Delaware-chartered bank and wholly owned subsidiary of Discover, with and into CONA, with CONA as the surviving entity.Contingency Funding Plan (“CFP”): A plan that describes the Company’s event management process and management response plans to ensure that the Company is prepared to respond to a liquidity crisis and to maintain the liquidity necessary to fund normal operating requirements. The plan establishes liquidity monitoring, quantitative assessment (including sizing of potential access to alternative contingent liquidity resources, qualitative and quantitative triggers that would signal risk, the liquidity event management process, and annual testing of the different components of the CFP.Credit risk: The risk to current or projected financial condition and resilience arising from an obligor’s failure to meet the terms of any contract with the Company or otherwise perform as agreed.
Deposit Insurance Fund (“DIF”): A fund maintained by the FDIC to provide insurance coverage for certain deposits. It is funded through assessments on banks.
Derivative: A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, credit worthiness for credit default swaps or financial or commodity indices.Discontinued operations: The operating results of a component of an entity, as defined by Accounting Standards Codification 205, that are removed from continuing operations when that component has been disposed of or it is management’s intention to sell the component.Discover: Discover Financial Services, a Delaware corporationDodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”): Regulatory reform legislation signed into law on July 21, 2010. This law broadly affects the financial services industry and contains numerous provisions aimed at strengthening the sound operation of the financial services sector.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Expanded Risk-Based Approach: The proposed framework for calculating risk-weighted assets for credit risk, operational risk, credit valuation adjustment risk and market risk that was introduced by the Basel III Finalization Proposal.
eXtensible Business Reporting Language (“XBRL”): A language for the electronic communication of business and financial data.
Federal Banking Agencies: The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.
Federal Deposit Insurance Corporation (“FDIC”): An independent U.S. governmental agency that administers the Deposit Insurance Fund.
Federal Reserve: The Board of Governors of the Federal Reserve System.
FFIEC 031: Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices filed quarterly with the Federal Banking Agencies.FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical modeling software created by FICO (formerly known as “Fair Isaac Corporation”) utilizing data collected by the credit bureaus.
120Capital One Financial Corporation (COF)
Table of ContentsFinancial Difficulty Modification (“FDM”): A FDM is deemed to occur when a loan modification is made to a borrower experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of these modifications in the current reporting period. FDMs became effective with the adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023.
Foreign exchange contracts: Contracts that provide for the future receipt or delivery of foreign currency at previously agreed-upon terms.
Framework: The Capital One enterprise-wide risk management framework.GSE or Agency: A government-sponsored enterprise or agency is a financial services corporation created by the United States Congress. Examples of U.S. government agencies include Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (“Ginnie Mae”) and the Federal Home Loan Bank (“FHLB”).Interest method: Method of amortization used to arrive at periodic interest income at a constant effective yield on the net investment in a financial asset.
Interest rate sensitivity: The exposure to interest rate movements.
Interest rate swaps: Contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. Interest rate swaps are the most common type of derivative contract that we use in our asset/liability management activities.
Investment grade: Represents a Moody’s long-term rating of Baa3 or better; and/or a S&P long-term rating of BBB- or better; and/or a Fitch long-term rating of BBB- or better; or if unrated, an equivalent rating using our internal risk ratings. Instruments that fall below these levels are considered to be non-investment grade.Investor entities: Entities that invest in community development entities (“CDE”) that provide debt financing to businesses and non-profit entities in low-income and rural communities.LCR Rule: The final rules published by the Basel Committee and as implemented by the Federal Banking Agencies in 2014 for the Basel III Liquidity Coverage Ratio (“LCR”) in the United States. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets by its estimated net cash outflow, as defined and calculated in accordance with the LCR Rule.
Leverage ratio: Tier 1 capital divided by average assets after certain adjustments, as defined by regulators.
Liquidity risk: The risk that the Company will not be able to meet its future financial obligations as they come due, or invest in future asset growth because of an inability to obtain funds at a reasonable price within a reasonable time.
Loan-to-value (“LTV”) ratio: The relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral securing the loan.
LTD Proposal: The proposed rule released by the Federal Banking Agencies on August 29, 2023 that would require banking organizations with $100 billion or more in total assets to comply with certain long-term debt requirements and clean holding company requirements.Loss severity: Loss given default.
Managed presentation: A non-GAAP presentation of business segment results derived from our internal management accounting and reporting process, which employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenues and expenses directly or indirectly attributable to each business segment. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources and are intended to reflect each segment as if it were a stand-alone business.
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Table of ContentsMarket risk: The risk that an institution’s earnings or the economic value of equity could be adversely impacted by changes in interest rates, foreign exchange rates or other market factors.
Master netting agreement: An agreement between two counterparties that have multiple contracts with each other that provides for the net settlement of all contracts through a single payment in the event of default or termination of any one contract.Merger Agreement: Agreement and Plan of Merger, dated as of February 19, 2024, by and among Discover, Capital One and Merger Sub.
Merger: The merger of Merger Sub with and into Discover, with Discover as the surviving entity, pursuant to the Merger Agreement.
Merger Sub: Vega Merger Sub, Inc.122
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Table of ContentsMortgage servicing rights (“MSRs”): The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections of principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.
Net charge-off rate : Represents (annualized) net charge-offs divided by average loans held for investment for the period. Negative net charge-offs and related rates are captioned as net recoveries.
Net interest margin: Represents (annualized) net interest income divided by average interest-earning assets for the period.Nonperforming loans: Generally include loans that have been placed on nonaccrual status. We do not report loans classified as held for sale as nonperforming.
NSFR Rule: The final rules published by the Basel Committee and as issued by the Federal Banking Agencies in October 2020 implementing the net stable funding ratio (“NSFR”) in the United States. The NSFR measures the stability of our funding profile and requires us to maintain minimum amounts of stable funding to support our assets, commitments and derivatives exposures over a one-year period.
Patriot Act: The USA PATRIOT Act of 2001.PR Rules: The U.S. prudential regulators’ margin rules for uncleared derivatives.
Proxy Statement: Proxy statement for the 2024 Annual Stockholder Meeting.Public Fund Deposits: Deposits that are derived from a variety of political subdivisions such as school districts and municipalities.Purchase Plan: Our Associate Stock Purchase Plan, which is a compensatory plan under the accounting guidance for stock-based compensation.
Purchase volume: Consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.
Rating agency: An independent agency that assesses the credit quality and likelihood of default of an issue or issuer and assigns a rating to that issue or issuer.
Recovery Plan: A plan that describes the Company’s approach for effectively responding to severely-adverse stress at both CONA and the Company. The Recovery Plan establishes qualitative and quantitative triggers for CONA and the Company that would signal the risk or existence of severely-adverse stress at the respective entity and identifies several specific remedial actions for recovery status that the Company can use to effectively respond to the stress environment. The Recovery Plan is separate from, but complementary to, the CFP.
Repurchase agreement: An instrument used to raise short-term funds whereby securities are sold with an agreement for the seller to buy back the securities at a later date.
Restructuring charges: Charges associated with the realignment of resources supporting various businesses, primarily consisting of severance and related benefits pursuant to our ongoing benefit programs and impairment of certain assets related to the business locations and/or activities being exited.
Risk Committee: The Risk Committee of the Board of Directors.
Risk-weighted assets: On- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default.
Second Step Merger: The merger of Discover with and into Capital One, with Capital One as the surviving entity123
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Table of ContentsSecuritized debt obligations: A type of asset-backed security and structured credit product constructed from a portfolio of fixed-income assets.
Stress capital buffer requirement: A component of our standardized approach capital conservation buffer, which is recalibrated annually based on the results of our supervisory stress tests.
Stress Capital Buffer Rule: The final rule issued by the Federal Reserve in March 2020 to implement the stress capital buffer requirement.
Subprime: For purposes of lending in our Credit Card business, we generally consider FICO scores of 660 or below, or other equivalent risk scores, to be subprime. For purposes of auto lending in our Consumer Banking business, we generally consider FICO scores of 620 or below to be subprime.
Tangible common equity (“TCE”): A non-GAAP financial measure calculated as common equity less goodwill and other intangible assets inclusive of any related deferred tax liabilities.This Report: This Annual Report on Form 10-K for the period ended December, 31 2024.
Transaction: On February 19, 2024, we entered into the Merger Agreement to acquire Discover in an all-stock transaction.
Trapped liquidity: The amount of high-quality liquid assets (HQLA) held by a bank that may not be transferred to other affiliates. This amount is excluded from the bank's HQLA amount.Troubled debt restructuring (“TDR”): A TDR is deemed to occur when the contractual terms of a loan agreement are modified by granting a concession to a borrower that is experiencing financial difficulty. The accounting guidance for TDRs was eliminated by ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , which we adopted as of January 1, 2023.
Unfunded lending commitments: Legally binding agreements to provide a defined level of financing until a specified future date.U.S. GAAP: Accounting principles generally accepted in the United States of America. Accounting rules and conventions defining acceptable practices in preparing financial statements in the U.S.
U.S. Real Gross Domestic Product (“GDP”) : An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.
Variable interest entity (“VIE”): An entity that, by design, either (i) lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) has equity investors that do not have (a) the ability to make significant decisions relating to the entity’s operations through voting rights, (b) the obligation to absorb the expected losses, and/or (c) the right to receive the residual returns of the entity.
Virginia Financial Institution Holding Company Act: Chapter 7 of Title 6.2 of the Code of Virginia governing the acquisition of interests in Virginia financial institutions.124Capital One Financial Corporation (COF)
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Acronyms
ABS: Asset-backed securities
ACL: Allowance for credit losses
AML: Anti-money launderingAOCI: Accumulated other comprehensive income
ASU: Accounting Standards Update
ATM: Automated teller machine
AWS: Amazon Web Services, Inc.
BHC: Bank holding company
BHC Act: The Bank Holding Company Act of 1956, as amended.
bps: Basis points
BSA: The Bank Secrecy Act
CAD: Canadian dollar
CAP: Compliance Assurance Process
CCPA: California Consumer Privacy Act (as amended by the California Privacy Rights Act)CCP: Central Counterparty Clearinghouse, or Central Clearinghouse
CDE: Community development entities
CECL: Current expected credit loss
CEO: Chief Executive Officer
CET1: Common equity Tier 1 capital
CFO: Chief Financial Officer
CFPB: Consumer Financial Protection Bureau
CFTC: Commodity Futures Trading Commission
CIBC: Change in Bank Control Act
CIO: Chief Information Officer
CIRCIA: Cyber Incident Reporting for Critical Infrastructure Act
CISA: Cybersecurity and Infrastructure Security Agency
CISO: Chief Information Security Officer125
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Table of ContentsCMBS: Commercial mortgage-backed securities
CME: Chicago Mercantile Exchange
CODM: Chief Operating Decision Maker
COEP: Capital One (Europe) plc
COF: Capital One Financial CorporationCONA : Capital One, National Association
COSO: Committee of Sponsoring Organizations of the Treadway Commission
CRA: Community Reinvestment Act
CTRO: Chief Technology Risk OfficerCVA: Credit valuation adjustmentDCF: Discounted cash flow
DFAST: Dodd-Frank Act Stress TestsDIB: Diversity Inclusion and BelongingDIF : Deposit Insurance Fund
DRR: Designated Reserve Ratio
DTCC: Depository Trust and Clearing Corporation
DVA: Debit valuation adjustment
ECRP: Enterprise Cyber Response Plan
EU: European Union
EU GDPR: EU General Data Protection Regulation
EUR: Euro
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCAC: Financial Consumer Agency of Canada
FCM: Futures commission merchant
FCRA: Fair Credit Reporting Act
FDM: Financial difficulty modification
FDIC: Federal Deposit Insurance Corporation
FDICIA: Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC: Federal Financial Institutions Examination Council
FHC: Financial Holding Company
FHLB: Federal Home Loan Bank
FICC - GSD : Fixed Income Clearing Corporation - Government Securities Division
FICO: Fair Isaac Corporation
FinCEN: Financial Crimes Enforcement Network
FINRA: Financial Industry Regulatory Authority
FIS: Fidelity Information Services
Fitch: Fitch Ratings
Freddie Mac: Federal Home Loan Mortgage Corporation
FS-ISAC: Financial Services Information Sharing and Analysis Center
FVC: Fair Value Committee
GAAP: Generally accepted accounting principles in the U.S.
GBP: Pound sterlingGDP: U.S. Real Gross Domestic Product
126
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Table of ContentsGDPR: General Data Protection Regulation
Ginnie Mae: Government National Mortgage Association
GLBA: Gramm-Leach-Bliley Act
G-SIB: Global systemically important banks
GSE or Agency: Government-sponsored enterprise
HFI: Held for Investment
HQLA: High-Quality Liquid Assets
ICE: Intercontinental Exchange
IRM: Independent Risk Management
IRS: Internal Revenue Service
LCH: LCH GroupLCR: Liquidity coverage ratio
LLC: Limited liability company
LTV: Loan-to-Value
Moody’s: Moody’s Investors Service
MSRs: Mortgage servicing rightsNORA: Notice of Opportunity to Respond and AdviseNOIT: Notice of Intent to TerminateNSFR: Net stable funding ratio
NYSE: New York Stock Exchange
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income
OFAC: Office of Foreign Assets ControlOPC: Canada’s Office of Privacy CommissionerOSFI: Office of the Superintendent of Financial Institutions
OTC: Over-the-counter
PCA: Prompt corrective action
PCAOB: Public Company Accounting Oversight Board
PCCR: Purchased credit card relationship
PCD: Purchased Credit-Deteriorated
PIPEDA: Personal Information Protection and Electronic Document ActPPI: Payment protection insurancePSU: Performance share units
RMBS: Residential mortgage-backed securities
ROU: Right-of-use127
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Table of ContentsRSU: Restricted stock unit
S&P: Standard & Poor’s
SEC: U.S. Securities and Exchange Commission
SOFR: Secured Overnight Financing Rate
TCE: Tangible common equity
TDR: Troubled debt restructuring
TILA: Truth in Lending Act
TSYS: Total System Services LLC
U.K.: United Kingdom
U.K. GDPR: U.K. General Data Protection Regulation
U.S.: United States of America
USD: United States Dollar
VAC: Valuations Advisory Committee
VaR: Value-At-Risk
VIE: Variable interest entity
VOE: Voting interest entity128Capital One Financial Corporation (COF)
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FY 2025-12-31 (later)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “Part I—Item 1. Business—Forward-Looking Statements” for more information on the forward-looking statements in this Report. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. Our actual results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not limited to, those described in “Part I—Item 1A. Risk Factors” in this Report. Unless otherwise specified, references to notes to our consolidated financial statements refer to the notes to our consolidated financial statements as of December 31, 2025 included in this Report.
Management monitors a variety of key indicators to evaluate our business results and financial condition. The following MD&A is intended to provide the reader with an understanding of our results of operations and financial condition, including capital and liquidity management, by focusing on changes from year to year in certain key measures used by management to evaluate performance, such as profitability, growth and credit quality metrics. MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements as of and for the year ended December 31, 2025 and accompanying notes. MD&A is organized in the following sections:• Selected Financial Data
• Capital Management
• Executive Summary • Risk Management
• Consolidated Results of Operations • Credit Risk Profile
• Consolidated Balance Sheets Analysis • Liquidity Risk Profile
• Off-Balance Sheet Arrangements • Market Risk Profile
• Business Segment Financial Performance • Supplemental Tables
• Critical Accounting Policies and Estimates • Glossary and Acronyms
• Accounting Changes and Developments59Capital One Financial Corporation (COF)
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SELECTED FINANCIAL DATAThe following table presents selected consolidated financial data and performance metrics for the three-year period ended December 31, 2025, 2024 and 2023. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We consider these metrics to be key financial measures that management uses in assessing our operating performance, capital adequacy and the level of returns generated. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP measures that may be presented by other companies.Three-Year Summary of Selected Financial Data(Dollars in millions, except per share data and as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Income statementInterest income $ 58,696 $ 46,034 $ 41,938 28% 10%
Interest expense 15,818 14,826 12,697 7 17
Net interest income 42,878 31,208 29,241 37 7
Non-interest income 10,556 7,904 7,546 34 5
Total net revenue 53,434 39,112 36,787 37 6
Provision for credit losses 20,655 11,716 10,426 76 12Non-interest expense:Marketing 5,884 4,562 4,009 29 14
Operating expense 24,614 16,924 16,307 45 4
Total non-interest expense 30,498 21,486 20,316 42 6
Income from continuing operations before income taxes 2,281 5,910 6,045 (61) (2)
Income tax provision 193 1,163 1,158 (83) —
Income from continuing operations, net of tax 2,088 4,747 4,887 (56) (3)
Income from discontinued operations, net of tax
365 3 — ** **
Net income 2,453 4,750 4,887 (48) (3)
Dividends and undistributed earnings allocated to participating securities (26) (77) (77) (66) —
Preferred stock dividends (252) (228) (228) 11 —
Discount on redeemed preferred stock
6 — — ** —
Net income available to common stockholders $ 2,181 $ 4,445 $ 4,582 (51) (3)Common share statistics
Basic earnings per common share:Net income from continuing operations $ 3.36 $ 11.60 $ 11.98 (71)% (3)%
Income from discontinued operations
0.67 0.01 — ** **
Net income per basic common share $ 4.03 $ 11.61 $ 11.98 (65) (3)Diluted earnings per common share:Net income from continuing operations $ 3.36 $ 11.58 $ 11.95 (71)% (3)%
Income from discontinued operations
0.67 0.01 — ** **
Net income per diluted common share
$ 4.03 $ 11.59 $ 11.95 (65) (3)
Common shares outstanding (period-end, in millions) 625.1 381.2 380.4 64 —
Dividends declared and paid per common share $ 2.60 $ 2.40 $ 2.40 8 —
Book value per common share (period-end) 181.76 159.44 152.71 14 4Tangible book value per common share (period-end) (1)107.72 106.97 99.78 1 7
Common dividend payout ratio (2)
64.52% 20.67% 20.03% 44 1
Stock price per common share (period-end) $ 242.36 $ 178.32 $ 131.12 36 36
Total market capitalization (period-end) 151,500 67,981 49,877 123 36
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Table of Contents(Dollars in millions, except per share data and as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Balance sheet (average balances)Loans held for investment $ 396,725 $ 317,421 $ 311,541 25% 2%
Interest-earning assets 546,685 453,481 441,238 21 3
Total assets 597,536 480,451 467,807 24 3
Interest-bearing deposits 402,209 324,297 313,737 24 3
Total deposits 429,620 351,168 343,554 22 2
Borrowings 48,034 48,465 49,332 (1) (2)
Common equity 89,286 54,953 50,349 62 9
Total stockholders’ equity 94,542 59,799 55,195 58 8Selected performance metricsPurchase volume $ 828,467 $ 654,436 $ 620,290 27% 6%
Global Payment Network volume (3)
401,775 N/A N/A ** **
Total net revenue margin (4)
9.77% 8.62% 8.34 % 115bps 28bps
Net interest margin 7.84 6.88 6.63 96 25
Return on average assets (5)
0.35 0.99 1.04 (64) (5)
Return on average tangible assets (6)
0.37 1.02 1.08 (65) (6)
Return on average common equity (7)
2.03 8.08 9.10 (605) (102)
Return on average tangible common equity (8)
3.16 11.18 13.04 (802) (186)
Equity-to-assets ratio (9)
15.82 12.45 11.80 337 65
Efficiency ratio (10)
57.08 54.93 55.23 215 (30)
Operating efficiency ratio (11)
46.06 43.27 44.33 279 (106)
Effective income tax rate from continuing operations 8.5 19.7 19.2 (1,120) 50
Net charge-offs $ 13,102 $ 10,748 $ 8,414 22% 28%
Net charge-off rate 3.30 % 3.39 % 2.70 % (9) bps 69 bpsDecember 31, Change(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Balance sheet (period-end)Loans held for investment $ 453,622 $ 327,775 $ 320,472 38% 2%
Interest-earning assets 613,750 463,058 449,701 33 3
Total assets 669,009 490,144 478,464 36 2
Interest-bearing deposits 448,386 336,585 320,389 33 5
Total deposits 475,771 362,707 348,413 31 4
Borrowings 51,000 45,551 49,856 12 (9)
Common equity 108,209 55,938 53,244 93 5
Total stockholders’ equity 113,616 60,784 58,089 87 5Credit quality metricsAllowance for credit losses $ 23,409 $ 16,258 $ 15,296 44% 6%Allowance coverage ratio5.16 % 4.96 % 4.77 % 20bps 19bps
30+ day performing delinquency rate 3.41 3.69 3.71 (28) (2)
30+ day delinquency rate 3.59 3.98 3.99 (39) (1)
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December 31, Change(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Capital ratios
Common equity Tier 1 capital (12)14.3 % 13.5 % 12.9 % 80bps 60bpsTier 1 capital (12)15.3 14.8 14.2 50 60Total capital (12)17.2 16.4 16.0 80 40Tier 1 leverage (12)12.5 11.6 11.2 90 40
Tangible common equity (“TCE”) (13)
10.7 8.6 8.2 210 39Supplementary leverage (12)10.6 9.9 9.6 70 30OtherEmployees (period end, in thousands) 76.3 52.6 52.0 45% 1%__________(1) Tangible book value per common share is a non-GAAP measure calculated based on TCE divided by common shares outstanding. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.(2) Common dividend payout ratio is calculated based on dividends per common share for the period divided by basic earnings per common share for the period.(3) Global Payment Network volume includes transactions processed on the Discover Network, PULSE Network, Diners Club and Network Partners.
(4) Total net revenue margin is calculated based on total net revenue for the period divided by average interest-earning assets for the period.
(5) Return on average assets is calculated based on net income (loss) less income (loss) from discontinued operations, net of tax, for the period divided by average total assets for the period.
(6) Return on average tangible assets is a non-GAAP measure calculated based on net income (loss) less income (loss) from discontinued operations, net of tax, for the period divided by average tangible assets for the period. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(7) Return on average common equity is calculated based on net income (loss) available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.
(8) Return on average tangible common equity is a non-GAAP measure calculated based on net income (loss) available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average TCE. Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(9) Equity-to-assets ratio is calculated based on average stockholders’ equity for the period divided by average total assets for the period.
(10) Efficiency ratio is calculated based on total non-interest expense for the period divided by total net revenue for the period.
(11) Operating efficiency ratio is calculated based on operating expense for the period divided by total net revenue for the period.(12) Capital ratios are calculated based on the Basel III standardized approach framework. See “Capital Management” for additional information.(13) TCE ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “Supplemental Table—Table B—Reconciliation of Non-GAAP Measures” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.** Not meaningful.62Capital One Financial Corporation (COF)
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EXECUTIVE SUMMARY
Financial HighlightsWe reported net income of $2.5 billion ($4.03 per diluted common share) on total net revenue of $53.4 billion for 2025. In comparison, we reported net income of $4.8 billion ($11.59 per diluted common share) on total net revenue of $39.1 billion for 2024 and net income of $4.9 billion ($11.95 per diluted common share) on total net revenue of $36.8 billion for 2023.
Our CET1 capital ratio as calculated under the Basel III standardized approach was 14.3% and 13.5% as of December 31, 2025 and 2024, respectively. See “Capital Management” for additional information.
For the year ended 2025, we declared and paid common stock dividends of $1.5 billion and repurchased $3.8 billion of shares of our common stock. On October 20, 2025, our Board of Directors authorized the repurchase of up to $16 billion of shares of the Company’s common stock, effective October 21, 2025. This new authorization replaces the Company’s prior authorization to repurchase its common stock approved by our Board of Directors in April 2022. See “Capital Management—Dividend Policy and Stock Purchases” for additional information.
Below are additional highlights of our performance in 2025. These highlights are based on a comparison between the results of 2025 and 2024, except as otherwise noted. The changes in our financial condition and credit performance as of December 31, 2025 compared to December 31, 2024 were primarily driven by the Transaction. We provide a more detailed discussion of our financial performance in the sections following this “Executive Summary.”Total Company Performance
• Earnings:Our net income decreased by $2.3 billion to $2.5 billion in the year ended 2025 compared to 2024 primarily driven by:
◦ Higher provision for credit losses primarily driven by the initial allowance for credit losses for non-purchased credit deteriorated (“non-PCD”) loans acquired in the Transaction.
◦ Higher non-interest expense primarily driven by impacts from the Transaction, including integration expenses, as well as continued investments in technology and higher marketing spend .These drivers were partially offset by:◦ Higher net interest income primarily driven by higher loan balances, including the impacts of the Transaction, and lower rates paid on deposits.
◦ Higher non-interest income primarily driven by growth in our credit card portfolio and the impacts of acquiring the Global Payment Network, both as a result of the Transaction.• Loans Held for Investment:◦ Loans held for investment increased by $125.8 billion to $453.6 billion as of December 31, 2025 compared to December 31, 2024 primarily driven by growth in our credit card loan portfolio, including the impact of the Transaction, as well as growth in our auto loan portfolio. The Transaction contributed $108.2 billion of loans held for investment as of the Closing Date.
◦ Average loans held for investment increased by $79.3 billion to $396.7 billion in the year ended 2025 compared to 2024 primarily driven by growth in our credit card loan portfolio, including the impact of the Transaction, as well as growth in our auto loan portfolio.• Net Charge-Off and Delinquency Metrics:◦ Our net charge-off rate decreased by 9 bps to 3.30% in 2025 compared to 2024.
◦ Our 30+ day delinquency rate decreased by 39 bps to 3.59% as of December 31, 2025 from December 31, 2024.
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Table of Contents• Allowance for Credit Losses: Our allowance for credit losses increased by $7.2 billion to $23.4 billion as of December 31, 2025 compared to December 31, 2024 primarily driven by the initial allowance for credit losses acquired in the Transaction. Our allowance coverage ratio increased by 20 bps to 5.16% as of December 31, 2025 compared to December 31, 2024 primarily driven by a higher concentration of credit card loans, which carry comparatively higher coverage than our auto and commercial loan portfolios.CONSOLIDATED RESULTS OF OPERATIONSThe section below provides a comparative discussion of our consolidated financial performance for 2025, 2024 and 2023. We provide a discussion of our business segment results in the following section, “Business Segment Financial Performance.” This section should be read together with our “Executive Summary,” where we discuss trends and other factors that we expect will affect our future results of operations.Net Interest IncomeNet interest income represents the difference between interest income, including certain fees, earned on our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. Our interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees, net of reversals, on loans that we deem collectible. Our net interest margin represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of non-interest-bearing funding and excluding discontinued operations. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities. Loans, other assets and liabilities associated with discontinued operations, and their related income and expense, are excluded from the net interest margin calculation.
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Table of ContentsTable 1 below presents the average outstanding balance, interest income earned, interest expense incurred and average yield for 2025, 2024 and 2023 for each major category of our interest-earning assets and interest-bearing liabilities. Nonperforming loans are included in the average loan balances below.Table 1: Average Balances, Net Interest Income and Net Interest Margin
Year Ended December 31,2025 2024 2023(Dollars in millions) Average Balance Interest Income/ Expense Average Yield/
Rate (1)
Average Balance Interest Income/ Expense Average Yield/
Rate (1)
Average Balance Interest Income/ Expense Average Yield/
Rate (1)
Assets:
Interest-earning assets:
Loans: (2)Credit card $ 227,309 $ 40,813 17.95 % $ 153,115 $ 29,226 19.09 % $ 141,675 $ 26,267 18.54 %
Consumer banking 81,225 7,604 9.36 75,974 6,612 8.70 77,514 6,041 7.79Commercial banking (3)88,685 5,585 6.30 89,007 6,301 7.08 92,984 6,363 6.84Other (4)— (981) ** — (1,245) ** — (1,261) **
Total loans, including loans held for sale 397,219 53,021 13.35 318,096 40,894 12.86 312,173 37,410 11.98
Investment securities 94,810 3,218 3.39 90,250 2,873 3.18 89,105 2,550 2.86
Cash equivalents and other interest-earning assets 54,656 2,457 4.50 45,135 2,267 5.02 39,960 1,978 4.95
Total interest-earning assets 546,685 58,696 10.74 453,481 46,034 10.15 441,238 41,938 9.50
Cash and due from banks 4,588 3,793 3,869
Allowance for credit losses (20,800) (15,968) (14,290)
Premises and equipment, net 5,099 4,409 4,373
Other assets 57,733 34,736 32,617
Assets of discontinued operations
4,231 — —
Total assets $ 597,536 $ 480,451 $ 467,807Liabilities and stockholders’ equity:
Interest-bearing liabilities:Interest-bearing deposits $ 402,209 $ 12,925 3.21% $ 324,297 $ 11,493 3.54 % $ 313,737 $ 9,489 3.02%
Securitized debt obligations 13,088 660 5.04 16,507 958 5.80 17,675 959 5.42
Senior and subordinated notes 34,017 2,172 6.39 31,529 2,333 7.40 31,109 2,204 7.08Other borrowings and interest-bearing liabilities (5)3,016 61 2.02 2,424 42 1.71 2,394 45 1.89
Total interest-bearing liabilities 452,330 15,818 3.50 374,757 14,826 3.96 364,915 12,697 3.48
Non-interest-bearing deposits 27,411 26,871 29,817
Other liabilities 23,235 19,024 17,880
Liabilities of discontinued operations 18 — —
Total liabilities 502,994 420,652 412,612
Stockholders’ equity 94,542 59,799 55,195
Total liabilities and stockholders’ equity $ 597,536 $ 480,451 $ 467,807
Net interest income/spread $ 42,878 7.24 $ 31,208 6.20 $ 29,241 6.03
Impact of non-interest-bearing funding 0.60 0.68 0.60
Net interest margin
7.84% 6.88% 6.63%__________(1) Average yield is calculated based on interest income for the period divided by average loans during the period. Average yield is calculated using whole dollar values for average balances and interest income/expense.
(2) Past due fees, net of reversals, included in interest income totaled approximately $2.6 billion in 2025, $2.3 billion in 2024 and $2.2 billion in 2023.
(3) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking
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Table of Contentsrevenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our commercial loans totaled approximately $80 million in 2025, $79 million in 2024 and $74 million in 2023, with corresponding reductions to the Other category.
(4) Interest income/expense in the Other category represents the impact of hedge accounting on our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.
(5) Includes amounts related to entities that provide capital to low-income and rural communities of $2.1 billion, $2.0 billion and $1.8 billion in 2025, 2024 and 2023, respectively. Related interest expense was $31 million, $31 million and $32 million for 2025, 2024 and 2023, respectively.** Not meaningful.Net interest income increased by $11.7 billion to $42.9 billion in 2025 compared to 2024 primarily driven by higher loan balances, including the impacts of the Transaction, and lower rates paid on deposits.
Net interest margin increased by 96 bps to 7.84% in 2025 compared to 2024 primarily driven by higher loan balances, including the impacts of the Transaction, and lower rates paid on deposits.
Our total company cumulative interest-bearing deposit beta increased to 23% as of December 31, 2025, from 11% as of December 31, 2024. We define cumulative deposit beta as the ratio of changes in the average rate paid on our average interest-bearing deposits to changes in the upper bound of the federal funds rate during the falling interest rate cycle.
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Table of ContentsTable 2 displays the change in our net interest income between periods and the extent to which the variance is attributable to:• Changes in the volume of our interest-earning assets and interest-bearing liabilities; or
• Changes in the interest rates related to these assets and liabilities.Table 2: Rate/Volume Analysis of Net Interest Income (1)2025 vs. 2024 2024 vs. 2023(Dollars in millions) Total Variance Volume Rate Total Variance Volume Rate
Interest income:
Loans:Credit card $ 11,587 $ 13,322 $ (1,735) $ 2,959 $ 2,166 $ 793
Consumer banking 992 473 519 571 (120) 691Commercial banking (2)(716) (23) (693) (62) (272) 210Other (3)264 162 102 16 — 16
Total loans, including loans held for sale 12,127 13,934 (1,807) 3,484 1,774 1,710
Investment securities 345 149 196 323 33 290
Cash equivalents and other interest-earning assets 190 428 (238) 289 259 30
Total interest income 12,662 14,511 (1,849) 4,096 2,066 2,030Interest expense:Interest-bearing deposits 1,432 2,504 (1,072) 2,004 328 1,676
Securitized debt obligations (298) (181) (117) (1) (64) 63
Senior and subordinated notes (161) 159 (320) 129 30 99
Other borrowings and liabilities 19 11 8 (3) 1 (4)
Total interest expense 992 2,493 (1,501) 2,129 295 1,834
Net interest income $ 11,670 $ 12,018 $ (348) $ 1,967 $ 1,771 $ 196__________(1) We calculate the change in interest income and interest expense separately for each item. The portion of interest income or interest expense attributable to both volume and rate is allocated proportionately when the calculation results in a positive value. When the portion of interest income or interest expense attributable to both volume and rate results in a negative value, the total amount is allocated to volume or rate, depending on which amount is positive. The portion of interest income or interest expense attributable to both volume and rate is calculated using rounded dollars in millions for average balances and interest income/expense.(2) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
(3) Interest income/expense in the Other category represents the impact of hedge accounting on our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.Non-Interest IncomeTable 3 displays the components of non-interest income for 2025, 2024 and 2023.Table 3: Non-Interest Income
Year Ended December 31,(Dollars in millions) 2025 2024 2023
Discount and interchange fees, net
$ 6,443 $ 4,882 $ 4,793
Service charges and other customer-related fees 2,849 1,976 1,667
Net securities gains (losses)
— (35) (34)Other (1)(2)1,264 1,081 1,120
Total non-interest income $ 10,556 $ 7,904 $ 7,546
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(1) Primarily consists of revenue from Capital One Shopping, treasury income, auto industry services and other investment income.
(2) Includes gains of $105 million, $94 million and $86 million on deferred compensation plan investments in 2025, 2024 and 2023, respectively. These amounts have corresponding offsets in non-interest expense.
Non-interest income increased by $2.7 billion to $10.6 billion in 2025 compared to 2024 primarily due to growth in our credit card portfolio and the impacts of acquiring the Global Payment Network, both as a result of the Transaction.Provision for Credit LossesOur provision for credit losses in each period is driven by net charge-offs, changes to the allowance for credit losses and changes to the reserve for unfunded lending commitments. We recorded a provision for credit losses of $20.7 billion in 2025, $11.7 billion in 2024 and $10.4 billion in 2023.
Our provision for credit losses increased by $8.9 billion to $20.7 billion in 2025 as compared to 2024 primarily driven by the initial allowance for credit losses of $8.8 billion for non-PCD loans acquired in the Transaction.
We provide additional information on the provision for credit losses and changes in the allowance for credit losses within “Credit Risk Profile” and “Item 8. Financial Statements and Supplementary Data—Note 5—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.” For information on the allowance methodology, see “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
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Non-Interest ExpenseTable 4 displays the components of non-interest expense for 2025, 2024 and 2023.Table 4: Non-Interest Expense
Year Ended December 31,(Dollars in millions) 2025 2024 2023
Operating expense:Salaries and associate benefits (1)$ 12,471 $ 9,398 $ 9,302
Occupancy and equipment 3,166 2,366 2,160
Professional services 2,424 1,610 1,268
Communications and data processing 1,770 1,462 1,383
Amortization of intangibles 1,326 77 82Other non-interest expense:Bankcard, regulatory and other fee assessments 490 304 548
Collections 730 366 353
Other 2,237 1,341 1,211
Total other non-interest expense 3,457 2,011 2,112
Total operating expense $ 24,614 $ 16,924 $ 16,307
Marketing 5,884 4,562 4,009
Total non-interest expense $ 30,498 $ 21,486 $ 20,316_________(1) Includes expenses of $105 million, $94 million and $86 million related to our deferred compensation plan investments for 2025, 2024 and 2023, respectively. These amounts have corresponding offsets from investments in other non-interest income.
Non-interest expense increased by $9.0 billion to $30.5 billion in the year ended 2025 compared to 2024 primarily driven by impacts from the Transaction, including integration expenses, as well as continued investments in technology and higher marketing spend .
For the years ended December 31, 2025 and 2024, we have incurred $1.1 billion and $234 million, respectively, of integration expenses related to the Transaction, primarily driven by salaries, associate benefits and professional services, which are included within operating expense in our consolidated statements of income.
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Income TaxesWe recorded an income tax expense of $193 million (8.5% effective income tax rate), $1.2 billion (19.7% effective income tax rate) and $1.2 billion (19.2% effective income tax rate) in 2025, 2024 and 2023, respectively. Our effective tax rate on income from continuing operations varies between periods due, in part, to the impact of changes in pre-tax income and changes in tax credits, tax-exempt income and non-deductible expenses relative to our pre-tax earnings.
We recorded a discrete tax benefit of $123 million in 2025 , a discrete tax benefit of $27 million in 2024 and a discrete tax expense of $6 million in 2023 . The discrete tax benefit in 2025 was primarily due to a State of California law change that resulted in a $128 million benefit.We provide additional information on items affecting our income taxes and effective tax rate in “Item 8. Financial Statements and Supplementary Data—Note 16—Income Taxes.”Income from Discontinued Operations, Net of Tax
Income from discontinued operations consists of results from the discontinued Discover Home Loan business acquired as a part of the Transaction. Income from discontinued operations, net of tax, was $365 million in 2025 primarily driven by a $483 million pre-tax gain on the sale of the Discover Home Loans Business in the fourth quarter of 2025. See “Item 8. Financial Statements and Supplementary Data—Note 2—Business Combinations and Discontinued Operations” for additional information.CONSOLIDATED BALANCE SHEETS ANALYSISTotal assets increased by $178.9 billion to $669.0 billion as of December 31, 2025 from December 31, 2024 primarily driven by the Transaction and growth in our credit card and auto loan portfolios. The Transaction contributed $168.6 billion in identifiable assets as of the Closing Date. See “Item 8. Financial Statements and Supplementary Data—Note 2—Business Combinations and Discontinued Operations” for more information.
Total liabilities increased by $126 billion to $555.4 billion as of December 31, 2025 from December 31, 2024. The Transaction contributed $130.2 billion in identifiable liabilities as of the Closing Date, partially offset by maturities and paydowns of securitized debt obligations and senior and subordinated notes.
Stockholders’ equity increased by $52.8 billion to $113.6 billion as of December 31, 2025 from December 31, 2024 primarily driven by reissuance of treasury stock of $50.6 billion related to the Transaction.
The following is a discussion of material changes in the major components of our assets and liabilities during 2025. Period-end balance sheet amounts may vary from average balance sheet amounts due to the Transaction, timing of normal balance sheet management activities that are intended to support our capital and liquidity positions, our market risk profile and the needs of our customers.Investment SecuritiesOur investment securities portfolio consists of the following: U.S. government-sponsored enterprise or agency (“GSE” or “Agency”) and non-agency residential mortgage-backed securities (“RMBS”), agency commercial mortgage-backed securities (“CMBS”), U.S. Treasury securities and other securities. Agency securities include securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”) and securities issued by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). The carrying value of our investments in Agency and U.S. Treasury securities represented 97% and 96% of our total investment securities portfolio as of December 31, 2025 and 2024, respectively.
The fair value of our investment securities portfolio increased by $8.0 billion to $91.1 billion as of December 31, 2025 from 2024 primarily driven by net purchases, including securities acquired in the Transaction and decreases in relevant benchmark interest rates.
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Loans Held for InvestmentTotal loans held for investment consists of both unsecuritized loans and loans held in our consolidated trusts. Table 5 summarizes by segment the carrying value of our loans held for investment, the allowance for credit losses and net loan balance as of December 31, 2025 and 2024.Table 5: Loans Held for InvestmentDecember 31, 2025 December 31, 2024(Dollars in millions) Loans Allowance Net Loans Loans Allowance Net LoansCredit Card $ 279,570 $ (20,066) $ 259,504 $ 162,508 $ (12,974) $ 149,534
Consumer Banking 84,790 (1,892) 82,898 78,092 (1,884) 76,208
Commercial Banking 89,262 (1,451) 87,811 87,175 (1,400) 85,775
Total $ 453,622 $ (23,409) $ 430,213 $ 327,775 $ (16,258) $ 311,517
Loans held for investment increased by $125.8 billion to $453.6 billion as of December 31, 2025 compared to December 31, 2024 primarily driven by growth in our credit card loan portfolio, including the impact of the Transaction, as well as growth in our auto loan portfolio. The Transaction contributed $108.2 billion of loans held for investment as of the Closing Date.We provide additional information on the composition of our loan portfolio and credit quality in “Credit Risk Profile,” “Consolidated Results of Operations” and “Item 8. Financial Statements and Supplementary Data—Note 4—Loans.”
Funding SourcesOur funding sources include deposits , senior and subordinated notes, securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase and ad vances from the Federal Home Loan Bank (“FHLB”) secured by certain portions of our loan and securities portfolios. Insured deposits in our Consumer Banking business represent our primary source of funding, as they are a relatively stable and low cost source of funding.
Table 6 provides the composition of our primary sources of funding as of December 31, 2025 and 2024.Table 6: Funding Sources CompositionDecember 31, 2025 December 31, 2024(Dollars in millions) Amount % of Total Amount % of Total
Deposits:Consumer Banking $ 423,932 80 % $ 318,329 78 %
Commercial Banking 31,250 6 31,691 8Other (1)20,589 4 12,687 3Total deposits475,771 90 362,707 89
Securitized debt obligations 12,853 3 14,264 3
Other debt 38,147 7 31,287 8
Total funding sources $ 526,771 100 % $ 408,258 100 %__________(1) Includes brokered deposit s of $19.2 billion an d $11.6 billion as of December 31, 2025 and 2024, respectively.
Total depos its increased by $113.1 billion to $475.8 billion as of December 31, 2025 from December 31, 2024 primarily driven by the Transaction and continued growth from our national banking strategy. The Transaction contributed $106.9 billion of deposits as of the Closing Date.
As of December 31, 2025 and 2024, we held $71.9 billion and $64.9 billion, respectively, of estimated uninsured deposits. These amounts were primarily comprised of checking and savings deposits. These estimated uninsured deposits comprised approximately 15% and 18% of our total deposits as of December 31, 2025 and 2024, respectively. We estimate our uninsured amounts based on methodologies and assumptions used for our “Consolidated Reports of Condition and Income” (FFIEC 031) filed with the Federal Banking Agencies, primarily adjusted to exclude intercompany balances and cash collateral received on certain derivative contracts which are not presented within deposits on our consolidated balance sheet.
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Table of ContentsSecuritized debt oblig ations decreased by $1.4 billion to $12.9 billion as of December 31, 2025 from December 31, 2024 primarily driven by net maturities and paydowns.
Other debt increased by $6.9 billion to $38.1 billion as of December 31, 2025 from December 31, 2024 primarily driven by the Transaction, which contributed $7.5 billion of other debt as of the Closing Date.We provide additional information on our funding sources in “Liquidity Risk Profile” and “Item 8. Financial Statements and Supplementary Data—Note 9—Deposits and Borrowings.”72Capital One Financial Corporation (COF)
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Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to management’s judgment that these future deductions are more likely than not to be realized. We evaluate the recoverability of these future tax deductions by assessing the adequacy of expected taxable income from all sources, including taxable income in carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and our short and long-range business forecasts to make these estimates.Deferred tax assets, net of deferred tax liabilities and valuation allowances, were approximately $5.9 billion as of December 31, 2025, a decrease of $3.1 billion from December 31, 2024. The decrease in our net deferred tax assets was mainly related to purchase accounting adjustments, including new intangibles and the revaluation of Discover’s assets and liabilities, favorable changes related to capitalized research costs from the One Big Beautiful Bill Act, and a decrease in the unrealized losses related to our available for sale securities and derivatives. These factors were partially offset by the initial establishment of Discover related allowance for credit losses.
Our recorded valuation allowance balances were $320 million and $529 million as of December 31, 2025 and 2024, respectively. If changes in circumstances lead us to change our judgment about our ability to realize deferred tax assets in future years, we will adjust our valuation allowances in the period that our change in judgment occurs and record a corresponding increase or charge to income.We provide additional information on income taxes in “Consolidated Results of Operations” and “Item 8. Financial Statements and Supplementary Data—Note 16—Income Taxes.”73Capital One Financial Corporation (COF)
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OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. These activities typically involve transactions with unconsolidated variable interest entities (“VIEs”) as well as other arrangements, such as letters of credit, loan commitments and guarantees, to meet the financing needs of our customers and support their ongoing operations. We provide additional information regarding these types of activities in “Item 8. Financial Statements and Supplementary Data—Note 6—Variable Interest Entities and Securitizations” and “Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”74Capital One Financial Corporation (COF)
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BUSINESS SEGMENT FINANCIAL PERFORMANCEOur principal operations are organized for management reporting purposes in to three major b usiness segments, which are defined primarily based on the products and services provided or the types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities that are not part of a business segment are included in the Other category, such as the management of our corporate investment portfolio and asset/liability positions performed by our centralized Corporate Treasury group and any residual tax expense or benefit beyond what is assessed to our business segments in order to arrive at the consolidated effective tax rate. The Other category also includes unallocated corporate expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges, integration expenses and certain liabilities incurred by Discover ahead of the Transaction.
The results related to the acquired Home Loan business have been reflected as discontinued operations. As such, the related results have been excluded from continuing operations and business segment results.
The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources. We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies and changes in organizational alignment. Our business segment results are intended to reflect each segment as if it were a stand-alone business. We use an internal management and reporting process to derive our business segment results. Our internal management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenues and expenses directly or indirectly attributable to each business. Total interest income and non-interest income are directly attributable to the segment in which they are reported. The net interest income of each segment reflects the results of our funds transfer pricing process, which is primarily based on a matched funding concept that takes into consideration market interest rates. Our funds transfer pricing process is managed by our centralized Corporate Treasury group and provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each business. The allocation is unique to each business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically, the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the businesses. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods.We refer to the business segment results derived from our internal management accounting and reporting process as our “managed” presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our business segment results may not be comparable to similar information provided by other financial services companies. In addition, our individual business segment results should not be used as a substitute for comparable results determined in accordance with U.S. GAAP.We summarize our business segment results for the years ended December 31, 2025, 2024 and 2023 and provide a comparative discussion of these results for 2025 and 2024, as well as changes in our financial condition and credit performance metrics as of December 31, 2025 compared to December 31, 2024. We provide a reconciliation of our total business segment results to our reported consolidated results in “Item 8. Financial Statements and Supplementary Data—Note 18—Business Segments and Revenue from Contracts with Customers.”
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Business Segment Financial PerformanceTable 7 summarizes our business segment results, which we report based on total net revenue (loss) and net income (loss) from continuing operations, for the years ended December 31, 2025, 2024 and 2023. We provide information on the allocation methodologies used to derive our business segment results in “Item 8. Financial Statements and Supplementary Data—Note 18—Business Segments and Revenue from Contracts with Customers.”Table 7 : Business Segment Results
Year Ended December 31,2025 2024 2023Total Net Revenue (Loss) (1)
Net Income
(Loss) (2)
Total Net Revenue (Loss) (1)
Net Income
(Loss) (2)
Total Net Revenue (Loss) (1)
Net Income
(Loss) (2)
(Dollars in millions) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of TotalCredit Card $ 39,560 74% $ 645 31% $ 28,164 72% $ 3,292 69% $ 25,669 70% $ 3,457 71%
Consumer Banking 10,433 19 1,225 59 8,718 22 1,460 31 9,302 25 2,258 46Commercial Banking (3)3,655 7 1,043 50 3,601 9 1,209 25 3,520 10 691 14Other (3)(214) — (825) (40) (1,371) (3) (1,214) (25) (1,704) (5) (1,519) (31)
Total $ 53,434 100% $ 2,088 100% $ 39,112 100% $ 4,747 100% $ 36,787 100% $ 4,887 100%__________
(1) Total net revenue (loss) consists of net interest income and non-interest income.
(2) Net income (loss) for our business segments and the Other category is based on income (loss) from continuing operations, net of tax.
(3) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.76Capital One Financial Corporation (COF)
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Credit Card BusinessThe primary sources of revenue for our Credit Card business are net interest income, net discount and interchange income and fees collected from customers. Expenses primarily consist of operating costs, the provision for credit losses and marketing expenses.
Our Credit Card business genera ted income from continuing operations, net of tax, of $645 million , $3.3 billion and $3.5 billion in 2025 , 2024 and 2023, respectively.Table 8 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.
Table 8: Credit Card Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Selected income statement data:Net interest income $ 31,822 $ 22,088 $ 19,729 44% 12%
Non-interest income 7,738 6,076 5,940 27 2Total net revenue (1)39,560 28,164 25,669 40 10Provision for credit losses19,066 10,272 8,651 86 19
Non-interest expense 19,641 13,576 12,490 45 9
Income from continuing operations before income taxes 853 4,316 4,528 (80) (5)
Income tax provision 208 1,024 1,071 (80) (4)
Income from continuing operations, net of tax $ 645 $ 3,292 $ 3,457 (80) (5)Selected performance metrics:Average loans held for investment:
Domestic credit card
$ 214,084 $ 146,000 $ 135,213 47 8
Personal loans
6,061 N/A N/A ** **
International card businesses
7,164 6,868 6,359 4 8
Total credit card
$ 227,309 $ 152,868 $ 141,572 49 8Average yield on loans (2)17.95 % 19.09 % 18.54 % (114)bps 55bpsTotal net revenue margin (3)17.40 18.39 18.12 (99) 27
Net charge-offs $ 11,571 $ 8,987 $ 6,472 29% 39%
Net charge-off rate (4)
5.09 % 5.88 % 4.57 % (79)bps 131bps
Purchase volume $ 828,467 $ 654,436 $ 620,290 27% 6%
(Dollars in millions, except as noted) December 31, 2025 December 31, 2024 ChangeSelected period-end data:Loans held for investment:
Domestic credit card
$ 262,403 $ 155,618 69%
Personal loans
9,499 N/A **
International card businesses
7,668 6,890 11
Total credit card
$ 279,570 $ 162,508 72
30+ day performing delinquency rate 3.93 % 4.53 % (60)bps
30+ day delinquency rate 3.94 4.54 (60)
Nonperforming loan rate (5)0.01 0.01 —Allowance for credit losses $ 20,066 $ 12,974 55%
Allowance coverage ratio 7.18% 7.98 % (80)bps__________(1) We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge off any uncollectible amounts. Total net revenue was reduced by $3.3 billion , $2.6 billion and $1.9 billion in 2025 , 2024 and 2023, respectively, for finance charges and fees charged off as uncollectible.
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Table of Contents(2) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(3) Total net revenue margin is calculated based on total net revenue for the period divided by average loans during the period.
(4) Charge-offs exclude $19.4 billion of Discover loans acquired in the second quarter of 2025 that were fully charged-off, with expected recoveries of $3.3 billion included as a benefit to the allowance for credit losses.
(5) Within our credit card loan portfolio, certain loans in our international card and personal loan businesses are classified as nonperforming. See “Nonperforming Loans and Other Nonperforming Assets” for additional information.
** Not meaningful.
Key factors affecting the results of our Credit Card business for 2025 compared to 2024, and changes in financial condition and credit performance between December 31, 2025 and 2024 include the following:
• Net Interest Income: Net interest income increased by $9.7 billion to $31.8 billion in 2025 primarily driven by higher loan balances, including the impacts of the Transaction.
• Non-Interest Income: Non-interest income increased by $1.7 billion to $7.7 billion in 2025 primarily due to growth in our portfolio, including the impacts of the Transaction.
• Provision for Credit Losses: Provision for credit losses increased by $8.8 billion to $19.1 billion in 2025 primarily driven by the initial allowance for credit losses for non-PCD loans acquired in the Transaction.
• Non-Interest Expense: Non-interest expense increased by $6.1 billion to $19.6 billion in 2025 primarily driven by the impacts of the Transaction, continued investments in technology and higher marketing spend.Loans Held for Investment:• Period-end loans held for investment increased by $117.1 billion to $279.6 billion as of December 31, 2025 from December 31, 2024 primarily driven by the Transaction and growth across our portfolio. The Transaction contributed $108.2 billion in loans held for investment as of the Closing Date.
• Average loans held for investment increased by $74.4 billion to $227.3 billion in 2025 compared to 2024 primarily driven by the Transaction and growth across our portfolio.Net Charge-Off and Delinquency Metrics:• The net charge-off rate decreased by 79 bps to 5.09% in 2025 compared to 2024. The loan portfolio acquired as part of the Transaction decreased the net charge-off rate by 35 bps for the year ended 2025.
• The 30+ day delinquency rate decreased by 60 bps to 3.94% as of December 31, 2025 from December 31, 2024. The loan portfolio acquired as part of the Transaction decreased the 30+ day delinquency rate by 44 bps for the year ended 2025.
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Domestic Card BusinessThe Domestic Card business generated income from continuing operations, net of tax, of $858 million, $3.1 billion and $3.3 billion in 2025, 2024 and 2023, respectively. In 2025, 2024 and 2023, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.Table 8.1 summarizes the financial results for our Domestic Card business and displays selected key metrics for the periods indicated.
Table 8.1: Domestic Card Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Selected income statement data:Net interest income $ 29,785 $ 20,881 $ 18,610 43% 12%
Non-interest income 7,537 5,811 5,672 30 2Total net revenue (1)37,322 26,692 24,282 40 10
Provision for credit losses 17,701 9,867 8,268 79 19
Non-interest expense 18,495 12,727 11,648 45 9
Income from continuing operations before income taxes 1,126 4,098 4,366 (73) (6)
Income tax provision 268 967 1,030 (72) (6)
Income from continuing operations, net of tax $ 858 $ 3,131 $ 3,336 (73) (6)Selected performance metrics:Average loans held for investment $ 214,084 $ 146,000 $ 135,213 47 8Average yield on loans (2)17.92 % 19.03 % 18.46% (111)bps 57 bps
Total net revenue margin (3)
17.43 18.25 17.94 (82) 31
Net charge-offs $ 10,971 $ 8,634 $ 6,164 27% 40%
Net charge-off rate (4)
5.12 % 5.91 % 4.56% (79)bps 135 bps
Purchase volume $ 812,221 $ 639,341 $ 605,664 27% 6%
(Dollars in millions, except as noted) December 31, 2025 December 31, 2024 ChangeSelected period-end data:Loans held for investment $ 262,403 $ 155,618 69%
30+ day performing delinquency rate 3.99 % 4.53 % (54)bps
Allowance for credit losses $ 18,811 $ 12,494 51%
Allowance coverage ratio 7.17 % 8.03 % (86)bps__________
(1) We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge off any uncollectible amounts. Finance charges and fees charged off as uncollectible are reflected as a reduction in total net revenue.
(2) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(3) Total net revenue margin is calculated based on total net revenue for the period divided by average loans during the period.(4) Charge-offs exclude $18.0 billion of Discover loans acquired in the second quarter of 2025 that were fully charged-off, with expected recoveries of $3.1 billion included as a benefit to the allowance for credit losses.
Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business decreased in 2025 compared to 2024 primarily driven by:
• Higher provision for credit losses primarily driven by the initial allowance for credit losses for non-PCD loans acquired in the Transaction.
• Higher non-interest expense primarily driven by the impacts of the Transaction, continued investments in technology and higher marketing spend.
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These drivers were partially offset by:• Higher net interest income primarily driven by higher loan balances, including the impacts of the Transaction.
• Higher non-interest income primarily driven by growth in our portfolio, including the impacts of the Transaction.Consumer Banking BusinessThe primary sources of revenue for our Consumer Banking business are net interest income from loans and deposits as well as service charges and customer-related fees, including revenue from processing transactions on the Global Payment Network. Expenses primarily consist of operating costs and the provision for credit losses.
Our Consumer Banking business generated income from continuing operations, net of tax, of $1.2 billion, $1.5 billion and $2.3 billion in 2025, 2024 and 2023, respectively.Table 9 summarizes the financial results of our Consumer Banking business and displays selected key metrics for the periods indicated.
Table 9: Consumer Banking Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Selected income statement data:Net interest income $ 8,758 $ 8,023 $ 8,713 9% (8)%
Non-interest income 1,675 695 589 141 18
Total net revenue 10,433 8,718 9,302 20 (6)
Provision for credit losses 1,302 1,435 1,169 (9) 23
Non-interest expense 7,524 5,372 5,178 40 4
Income from continuing operations before income taxes 1,607 1,911 2,955 (16) (35)
Income tax provision 382 451 697 (15) (35)
Income from continuing operations, net of tax $ 1,225 $ 1,460 $ 2,258 (16) (35)
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Year Ended December 31, Change
(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Selected performance metrics:
Average loans held for investment:Auto $ 80,009 $ 74,692 $ 76,067 7 (2)
Retail banking 1,216 1,281 1,446 (5) (11)
Total consumer banking $ 81,225 $ 75,973 $ 77,513 7 (2)Average yield on loans held for investment (1)9.36 % 8.70% 7.79% 66bps 91 bps
Average deposits $ 379,915 $ 303,873 $ 285,880 25% 6%
Average deposits interest rate 3.02 % 3.23 % 2.59 % (21)bps 64 bps
Net charge-offs $ 1,294 $ 1,593 $ 1,364 (19)% 17%
Net charge-off rate 1.59 % 2.10 % 1.76 % (51)bps 34 bps
Global Payment Network volume $ 401,775 N/A N/A ** **
Auto loan originations 40,996 $ 34,542 $ 26,980 19% 28%
(Dollars in millions, except as noted) December 31, 2025 December 31, 2024 ChangeSelected period-end data:
Loans held for investment:Auto $ 83,600 $ 76,829 9%
Retail banking 1,190 1,263 (6)
Total consumer banking $ 84,790 $ 78,092 9
30+ day performing delinquency rate 5.17 % 5.87 % (70)bps
30+ day delinquency rate 5.73 6.73 (100)
Nonperforming loan rate 0.69 0.99 (30)Nonperforming asset rate (2)0.79 1.08 (29)
Allowance for credit losses $ 1,892 $ 1,884 —
Allowance coverage ratio 2.23 % 2.41 % (18)bps
Deposits $ 423,932 $ 318,329 33%_________
(1) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(2) Nonperforming assets primarily consist of nonperforming loans and repossessed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and repossessed assets.** Not meaningful.
Key factors affecting the results of our Consumer Banking business for 2025 compared to 2024, and changes in financial condition and credit performance between December 31, 2025 and 2024 include the following:
• Net Interest Income: Net interest income increased by $735 million to $8.8 billion in 2025 primarily driven by higher deposits as a result of the Transaction and higher average loan balances in our auto business.
• Non-Interest Income: Non-interest income increased by $980 million to $1.7 billion in 2025 primarily driven by the impacts of acquiring the Global Payment Network in the Transaction.
• Provision for Credit Losses: Provision for credit losses decreased by $133 million to $1.3 billion in 2025 primarily driven by favorable credit performance in our auto loan portfolio.
• Non-Interest Expense: Non-interest expense increased by $2.2 billion to $7.5 billion in 2025 primarily driven by the impacts of the Transaction, an increase in the litigation accrual, continued investments in technology and higher marketing spend.
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Table of ContentsLoans Held for Investment:• Period-end loans held for investment increased by $6.7 billion to $84.8 billion as of December 31, 2025 from December 31, 2024 primarily driven by growth in our auto loan portfolio.
• Average loans held for investment increased by $5.3 billion to $81.2 billion in 2025 compared to 2024 primarily driven by growth in our auto loan portfolio.Deposits:• Period-end deposits increased by $105.6 billion to $423.9 billion as of December 31, 2025 from December 31, 2024 primarily driven by the Transaction and continued growth from our national banking strategy. The Transaction contributed $91.7 billion in deposits as of the Closing Date.Net Charge-Off and Delinquency Metrics:• The net charge-off rate decreased by 51 bps to 1.59% in 2025 compared to 2024 primarily driven by favorable credit performance in our auto loan portfolio.
• The 30+ day delinquency rate decreased by 100 bps to 5.73% as of December 31, 2025 compared to December 31, 2024.
Commercial Banking Business
The primary sources of revenue for our Commercial Banking business are net interest income from loans and deposits and non-interest income earned from products and services provided to our clients such as capital markets, advisory services, net interchange and treasury management. Because our Commercial Banking business has loans and investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent basis. Expenses primarily consist of operating costs and the provision for credit losses.
Our Commercial Banking business generated income from continuing op erations, net of tax, of $1.0 billion , $1.2 billion and $691 million in 2025, 2024 and 2023, respectively.
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Table of ContentsTable 10 summarizes the financial results of our Commercial Banking business and displays selected key metrics for the periods indicated.
Table 10: Commercial Banking Business Results
Year Ended December 31, Change(Dollars in millions, except as noted) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Selected income statement data:Net interest income $ 2,334 $ 2,391 $ 2,518 (2)% (5)%
Non-interest income 1,321 1,210 1,002 9 21Total net revenue (1)3,655 3,601 3,520 1 2Provision for credit losses (2)287 8 605 ** (99)
Non-interest expense 1,999 2,011 2,011 (1) —
Income from continuing operations before income taxes 1,369 1,582 904 (13) 75
Income tax provision 326 373 213 (13) 75
Income from continuing operations, net of tax $ 1,043 $ 1,209 $ 691 (14) 75Selected performance metrics:
Average loans held for investment:Commercial and multifamily real estate $ 32,634 $ 33,141 $ 36,448 (2) (9)
Commercial and industrial 55,557 55,439 56,008 — (1)
Total commercial banking $ 88,191 $ 88,580 $ 92,456 — (4)Average yield on loans held for investment (1)(3)6.30 % 7.09 % 6.86 % (79)bps 23bps
Average deposits $ 30,859 $ 31,140 $ 37,411 (1)% (17)%
Average deposits interest rate 2.07 % 2.51 % 2.68 % (44)bps (17)bps
Net charge-offs $ 237 $ 168 $ 578 41% (71)%
Net charge-off rate 0.27 % 0.19 % 0.62 % 8bps (43)bps
(Dollars in millions, except as noted) December 31, 2025 December 31, 2024 ChangeSelected period-end data:
Loans held for investment:Commercial and multifamily real estate $ 33,618 $ 31,903 5%
Commercial and industrial 55,644 55,272 1
Total commercial banking $ 89,262 $ 87,175 2
Nonperforming loan rate 1.36 % 1.39 % (3)bpsNonperforming asset rate (4)1.39 1.39 —Allowance for credit losses (2)$ 1,451 $ 1,400 4%
Allowance coverage ratio 1.63% 1.61 % 2bps
Deposits $ 31,250 $ 31,691 (1)%
Loans serviced for others 52,240 52,749 (1)__________
(1) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.(2) The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitmen ts totaled $142 million , $143 million and $158 million as of December 31, 2025, 2024 and 2023 , respectively.(3) Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.
(4) Nonperforming assets consist of nonperforming loans and other foreclosed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and other foreclosed assets.83
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Key factors affecting the results of our Commercial Banking business for 2025 compared to 2024, and changes in financial condition and credit performance between December 31, 2025 and 2024 include the following:
• Net Interest Income: Net interest income decreased by $57 million to $2.3 billion in 2025 primarily driven by lower margins.
• Non-Interest Income: Non-interest income increased by $111 million to $1.3 billion in 2025 primarily driven by our capital markets business.
• Provision for Credit Losses: Provision for credit losses increased by $279 million to $287 million in 2025 primarily driven by a net allowance build compared to a net allowance release in 2024.
• Non-Interest Expense: Non-interest expense remained substantially flat at $2.0 billion in 2025 compared to 2024.Loans Held for Investment:• Period-end loans held for investment increased by $2.1 billion to $89.3 billion as of December 31, 2025 from December 31, 2024 primarily due to originations outpacing customer payments.
• Average loans held for investment remained substantially flat at $88.2 billion in 2025 compared to 2024.Deposits:• Period-end deposits decreased by $441 million to $31.3 billion as of December 31, 2025 from December 31, 2024 primarily driven by isolated attrition.Net Charge-Off and Nonperforming Metrics:• The net charge-off rate increased by 8 bps to 0.27% in 2025 compared to 2024.
• The nonperforming loan rate decreased by 3 bps to 1.36% as of December 31, 2025 compared to December 31, 2024.Other Category
Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our corporate investment securities portfolio, asset/liability management and oversight of our funds transfer pricing process. Other also includes:
• unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges and integration expenses related to the Transaction;• residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments; and• foreign exchange rate fluctuations on foreign currency-denominated balances. As a result of our derivative management activities, we believe our net exposure to foreign exchange risk is minimal.
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Table of ContentsTable 11 summarizes the financial results of our Other category for the periods indicated.
Table 11: Other Category Results
Year Ended December 31, Change(Dollars in millions) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023Selected income statement data:Net interest loss
$ (36) $ (1,294) $ (1,719) (97)% (25)%
Non-interest income (loss) (178) (77) 15 131 **Total net loss (1)(214) (1,371) (1,704) (84) (20)
Provision for credit losses
— 1 1 ** —
Non-interest expense 1,334 527 637 153 (17)
Loss from continuing operations before income taxes (1,548) (1,899) (2,342) (18) (19)
Income tax benefit (723) (685) (823) 6 (17)
Loss from continuing operations, net of tax $ (825) $ (1,214) $ (1,519) (32) (20)__________
(1) Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
** Not meaningful.Loss from continuing operations, net of tax decreased by $389 million to a loss of $825 million in 2025 compared to 2024 primarily driven by higher treasury income, partially offset by higher integration expenses related to the Transaction.
For the years ended December 31, 2025 and December 31, 2024, we incurred $1.1 billion and $234 million, respectively, of integration expenses related to the Transaction, primarily driven by salaries, associate benefits and professional services, which are included within operating expense in our consolidated statements of income.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the amount of assets, liabilities, income and expenses on the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies under “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
We have identified the following accounting estimates as critical because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. Our critical accounting policies and estimates are as follows:
• Loan loss reserves
• Goodwill
• Fair value
• Customer rewards reserve
We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary, based on changing conditions.
Loan Loss ReservesWe maintain an allowance for credit losses that represents management’s current estimate of expected credit losses inherent in our credit card, consumer banking and commercial banking segments as of each balance sheet date. We also reserve for the uncollectible portion of finance charges and fees related to credit card loan receivables in the allowance for credit losses consistent with the methodology we use to estimate the allowance for credit losses on the principal portion of our credit card loan receivables. We separately reserve for unfunded lending commitments that are not unconditionally cancellable. We recognize changes in our allowance for credit losses and reserve for unfunded lending commitments through the provision for credit losses. The allowance for credit losses was $23.4 billion as of December 31, 2025, compared to $16.3 billion as of December 31, 2024.Our allowance for credit losses and reserve for unfunded lending commitments utilize models to derive a quantitative estimate of credit losses that is supplemented with additional qualitative considerations to capture risks and uncertainties not included in the quantitative result. Our estimate of expected credit losses, for all loan and unfunded lending commitments, includes a reasonable and supportable forecast period of one year and then reverts over a one-year period to historical losses at each relevant loss component of the estimate. We use externally produced consensus estimates as inputs for our forward-looking macroeconomic forecast and consider other forecasts and sources of uncertainty to develop the quantitative component. This quantitative result is then supplemented qualitatively by management for economic uncertainty, including the consideration of alternative macroeconomic scenarios, changes and trends in loan portfolios that may not be captured in the quantitative component. These adjustments represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses.We have an established process, using analytical tools and management judgment, to determine our allowance for credit losses. Significant management judgment is required to determine the relevant information and estimation methods used to arrive at our best estimate of lifetime credit losses. Establishing the allowance on a quarterly basis involves evaluating and forecasting both credit and macroeconomic variables. The macroeconomic forecast used to inform both quantitative and qualitative components of our allowance for credit losses estimate is sensitive to certain variables, such as the U.S. Unemployment Rate, and the U.S. Real Gross Domestic Product (“GDP”) Growth Rate assu mptions. Our December 31, 2025 allowance assumes that the quarterly average U.S. unemployment rate is approximately 4.5% by the fourth quarter of 2026 and annual U.S. Real GDP grows by 1.7% in 2026.In addition to macroeconomic factors, many credit factors inform our allowance for credit losses, including, but not limited to, historical loss and recovery experience, recent trends in delinquencies and charge-offs, risk ratings, the impact of bankruptcy86Capital One Financial Corporation (COF)
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filings, the value of collateral underlying secured loans, account seasoning, changes in our credit evaluation, underwriting and collection management policies, seasonality, credit bureau scores, current general economic conditions, changes in the legal and regulatory environment and uncertainties in forecasting and modeling techniques used in estimating our allowance for credit losses.
We have a governance framework supported by processes and controls intended to ensure that our estimate of the allowance for credit losses is appropriate. Our governance framework provides for oversight of methods, models, qualitative adjustments, process controls and results. At least quarterly, representatives from the Finance and Risk Management organizations review and assess our allowance methodologies, key assumptions and the appropriateness of the allowance for credit losses. Groups independent of our estimation functions participate in the review and validation process. Tasks performed by these groups include periodic review of the rationale for and quantification of inputs requiring judgment as well as adjustments to results.
We have model policies, established by an independent Model Risk Office, which govern the validation of models and related supporting documentation to ensure the appropriate use of models for estimating credit losses. The Model Risk Office validates all models and requires ongoing monitoring of their performance.
In addition to the allowance for credit losses, on a quarterly basis, we review and assess our estimate of expected losses related to unfunded lending commitments that are not unconditionally cancellable which are generally in our Commercial Banking business. The factors impacting our assessment generally align with those considered in our evaluation of the allowance for credit losses for the Commercial Banking business. The reserve for losses on unfunded lending commitments is included in other liabilities on our consolidated balance sheets and changes to it are recorded through the provision for credit losses in our consolidated statements of income.Although we examine a variety of externally available data, as well as our internal loan performance data, to determine our allowance for credit losses and reserve for unfunded lending commitments, our estimation process is subject to risks and uncertainties, including a reliance on historical loss and trend information that may not be representative of current conditions and indicative of future performance as well as economic forecasts that may not align with actual future economic conditions. Accordingly, our actual credit loss experience may not be in line with our expectations. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses in “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.” We provide information on the components of our allowance, disaggregated by operating segment, and changes in our allowance in “Item 8. Financial Statements and Supplementary Data—Note 5—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.”Goodwill
Goodwill represents the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the assets acquired and liabilities assumed as of the acquisition date.Goodwill totaled $28.5 billion and $15.1 billion as of December 31, 2025 and 2024, respectively. We recognized $13.4 billion of goodwill related to the Transaction in 2025. We did not recognize any goodwill impairment in 2025 or 2024. See “Item 8. Financial Statements and Supplementary Data—Note 2—Business Combinations and Discontinued Operations” and “Item 8. Financial Statements and Supplementary Data—Note 7—Goodwill and Other Intangible Assets” for additional information.
We perform our goodwill impairment test annually on October 1 at a reporting unit level. We are also required to test goodwill for impairment whenever events or circumstances indicate it is more-likely-than-not that an impairment may have occurred. An impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying amount exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit. We have four reporting units: Credit Card, Auto Finance, Other Consumer Banking and Commercial Banking.
For the purpose of our goodwill impairment testing, we calculate the carrying amount of a reporting unit using an allocated capital approach based on each reporting unit’s specific regulatory capital requirements and underlying risks. The carrying amount for a reporting unit is the sum of its respective capital requirements, goodwill and other intangibles balances. Consolidated stockholder’s equity in excess of the sum of all reporting units capital requirements that is not identified for future capital needs, such as dividends, share buybacks, or other strategic initiatives, is allocated to the reporting units and the Other category and assumed to be distributed to equity holders.Determining the fair value of a reporting unit is a subjective process that requires the use of estimates and the exercise of significant judgment. We calculate the fair value of our reporting units using a discounted cash flow (“DCF”) calculation, a87Capital One Financial Corporation (COF)
Table of Contentsform of the income approach. This DCF calculation uses projected cash flows based on each reporting unit’s internal forecast and the perpetuity growth method to calculate terminal values. Our DCF calculation requires management to make estimates about future loan, deposit and revenue growth, as well as credit losses and capital rates. These cash flows and terminal values are then discounted using discount rates based on our external cost of capital with adjustments for the risk inherent in each reporting unit. In the 2025 annual impairment test, discount rates used for our reporting units ranged from 8.3% to 13.3%, and we applied a terminal year long-term growth rate of 3.8% to all reporting units. The reasonableness of our DCF calculation is assessed by reference to a market-based approach using comparable market multiples and recent market transactions where available. The usefulness of market data is inherently limited due to the size and scope of our operations compared to most peer institutions and recent market transactions. The results of the 2025 annual impairment test indicated that the estimated fair values of the reporting units exceeded their carrying amounts by between 25% and 122%. We also compare the aggregate fair values of our reporting units to our market capitalization. Our assessment considers the level of premium expected to assume control of the Company in a market transaction including anticipated cost savings and other synergies that would be realized in a hypothetical transaction.
Assumptions used in estimating the fair value of a reporting unit are judgmental and inherently uncertain. A change in the economic conditions of a reporting unit, such as declines in business performance as a result of industry or macroeconomic trends or changes in our strategy, adverse impacts to loan or deposit growth trends, decreases in revenue, increases in expenses, deterioration in a significant loan portfolio, increases in credit losses, increases in capital requirements, deterioration of market conditions, declines in long-term growth expectations, an increase in disposition activity, the inability to achieve expected synergies from the Transaction, adverse impacts of regulatory or legislative changes or increases in the estimated cost of capital could cause the estimated fair values of our reporting units to decline in the future, and increase the risk of a goodwill impairment in a future period. We perform sensitivity analyses around certain assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.We have a governance framework supported by processes and controls intended to ensure that the accounting and disclosure for goodwill is appropriate. Our governance framework provides for oversight of assumptions, forecast inputs, methods, process controls and results.
Fair ValueFor our financial instruments subject to fair value measurement, the fair value accounting guidance provides a principles-based framework for measuring fair value. Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:Level 1: Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, DCF methodologies or similar techniques.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted prices in active markets or observable market inputs. When quoted prices and observable data in active markets are not fully available, management judgment is necessary to estimate fair value. Changes in market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value.We have developed policies and procedures to determine when markets for our financial assets and liabilities are inactive if the level and volume of activity has declined significantly relative to normal conditions. If markets are determined to be inactive, it
88Capital One Financial Corporation (COF)
Table of Contentsmay be appropriate to adjust price quotes received. When significant adjustments are required to price quotes or inputs, it may be appropriate to utilize an estimate based primarily on unobservable inputs.Significant judgment may be required to determine whether certain financial instruments measured at fair value are classified as Level 2 or Level 3. In making this determination, we consider all available information that market participants use to measure the fair value of the financial instrument, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances of each instrument or instrument category, judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument is classified as Level 3. The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. We discuss changes in the valuation inputs and assumptions used in determining the fair value of our financial instruments, including the extent to which we have relied on significant unobservable inputs to estimate fair value and our process for corroborating these inputs, in “Item 8. Financial Statements and Supplementary Data—Note 17—Fair Value Measurement.”
We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control processes include review and approval of new transaction types, price verification, and review of valuation judgments, methods, models, process controls and results.
Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by these groups include verification of fair value measurements at least quarterly to determine if assigned fair values are reasonable, including comparing prices from vendor pricing services to other available market information.
Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance, provides guidance and oversight to ensure an appropriate valuation control environment. The FVC reviews and approves our fair valuations at least quarterly to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting guidance.
We have model policies, established by an independent Model Risk Office, which govern the validation of models and related supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office validates all models and requires ongoing monitoring of their performance.The fair value governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that cannot be resolved by the FVC to a more senior committee cal led the Valuations Advisory Committee (“VAC”) for resolution. The VAC is chaired by the Chief Financial Officer (“CFO”) and includes other members of senior management. There were no disputes escalated to the VAC for the years ended December 31, 2025 and 2024.
For additional disclosures regarding the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Transaction, refer to “Item 8. Financial Statements and Supplementary Data—Note 2—Business Combinations and Discontinued Operations.”Customer Rewards ReserveWe offer products, primarily credit cards, which include programs that allow members to earn rewards based on account activity that can be redeemed for cash (primarily in the form of statement credits), gift cards, travel or covering eligible charges. The amount of rewards that a customer earns varies based on the terms and conditions of the rewards program and product. The majority of our rewards do not expire and there is no limit on the amount of rewards an eligible card member can earn. Customer rewards costs, which we generally record as an offset to interchange income, are driven by various factors such as card member purchase volume, the terms and conditions of the rewards program and rewards redemption cost. We establish a customer rewards reserve that reflects management’s judgment regarding rewards earned that are expected to be redeemed and the estimated redemption cost.
We use financial models to estimate ultimate redemption rates of rewards earned by current card members based on historical redemption trends, current enrollee redemption behavior, card product type, year of program enrollment, enrollment tenure and card spend levels. Our current assumption is that the substantial majority of all rewards earned will eventually be redeemed. We use the weighted-average redemption cost during the previous twelve months, adjusted as appropriate for recent changes in redemption costs, including changes related to the mix of rewards redeemed, to estimate future redemption costs. We
89Capital One Financial Corporation (COF)
Table of Contentscontinually evaluate our reserve and assumptions based on developments in redemption patterns, changes to the terms and conditions of the rewards program and other factors. While the rewards liability is sensitive to changes in assumptions for redemption rates and costs and involves management judgment, we believe portfolio characteristics and historical performance are the best indication of future reward redemption behavior and are the primary basis for our estimate. We recognized customer rewards expense of $11.5 billion, $9.0 billion and $8.2 billion in 2025, 2024 and 2023, respectively. Our customer rewards reserve, which is included in other liabilities on our consolidated balance sheets, totaled $11.1 billion and $8.2 billion as of December 31, 2025 and 2024, respectively.We have a governance framework supported by processes and controls that are intended to ensure that our rewards liability estimate is appropriate and reliable. Our governance framework provides for oversight of assumptions, inputs, methods, process controls and results. Additional controls are performed to ensure all underlying data used to derive the rewards liability is complete and accurate.90
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Table of ContentsACCOUNTING CHANGES AND DEVELOPMENTSAccounting Standards Issued but Not Adopted as of December 31, 2025Standard Guidance Adoption Timing and Financial Statement ImpactsDisaggregation of Income Statement ExpensesAccounting Standards Update (“ASU”) No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement ExpensesIssued November 2024Requires entities to separately disclose specific disaggregated expense categories on an annual and interim basis as well as disclose selling expenses on an annual basis. Effective beginning with our annual period ending on December 31, 2027, with early adoption permitted. Prospective and retrospective applications are permitted. We are still assessing the extent of the impacts of adoption to our disclosures.
Internal-Use Software
ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software
Issued September 2025
Requires entities to capitalize costs associated with internal-use software based on a new methodology, which focuses on management’s authorization and commitment to funding the project and the probability that the software will be completed and used to perform the function intended. Effective beginning with our interim period March 31, 2028, with early adoption permitted. Prospective, retrospective and modified transition applications are each permitted.
We are still assessing the extent of the impacts of adoption to our consolidated financial statements.
Purchased Seasoned Loans
ASU No. 2025-08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans
Issued November 2025
Expands the population of acquired financial assets subject to the gross-up approach in Topic 326, which requires an entity to record an initial allowance for credit losses through an adjustment to the asset’s amortized cost basis rather than through a current-period provision for credit losses. The expanded population includes loan receivables, excluding credit cards, acquired without credit deterioration that are deemed “seasoned,” as defined by the update.
Effective beginning with our interim period March 31, 2027, with early adoption permitted. Prospective application is required.
We are still assessing the extent of the impacts of adoption to our consolidated financial statements.
Hedge Accounting Improvements
ASU No. 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements
Issued November 2025
Enables entities to achieve and maintain hedge accounting to a greater number of highly effective economic hedges.
Effective beginning with our interim period March 31, 2027, with early adoption permitted. Prospective application is required.
We are still assessing the extent of the impacts of adoption to our consolidated financial statements.
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CAPITAL MANAGEMENT
The level and composition of our capital are determined by multiple factors, including our consolidated regulatory capital requirements as described in more detail below and internal risk-based capital assessments such as internal stress testing. The level and composition of our capital may also be influenced by rating agency guidelines, subsidiary capital requirements, business environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business and market environments.
Capital Standards and Prompt Corrective ActionThe Company and the Bank are subject to Basel III Capital Rules. The Basel III Capital Rules implement certain capital requirements published by the Basel Committee, along with certain provisions of the Dodd-Frank Act and other capital provisions.As a BHC with total consolidated assets of at least $250 billion but less than $700 billion and not exceeding any of the applicable risk-based thresholds, the Company is a Category III institution under the Basel III Capital Rules.
The Bank, as a subsidiary of a Category III institution, is a Category III bank. Moreover, the Bank, as an insured depository institution, is subject to PCA capital regulations.
Basel III and U.S. Capital Rules
Under the Basel III Capital Rules, we must maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4.0% and a minimum supplementary leverage ratio of 3.0%. We are also subject to the capital conservation buffer requirement and countercyclical capital buffer requirement, each as described below. Our capital and leverage ratios are calculated based on the Basel III standardized approach framework.
We have elected to exclude certain elements of AOCI from our regulatory capital as permitted for a Category III institution. For information on the recognition of AOCI in regulatory capital under the proposed changes to the Basel III Capital Rules, see “Part I—Item 1. Business—Supervision and Regulation—Prudential Regulation of Banking—Capital and Stress Testing Regulation—Basel III Finalization Proposal.”
G-SIBs that are based in the U.S. are subject to an additional CET1 capital requirement known as the “G-SIB Surcharge.” We are not a G-SIB based on the most recent available data and thus we are not subject to a G-SIB Surcharge.Capital Buffer Requirements
The Basel III Capital Rules require banking institutions to maintain a capital conservation buffer, composed of CET1 capital, above the regulatory minimum ratios. Under the Stress Capital Buffer Rule, the Company’s “standardized approach capital conservation buffer” includes its stress capital buffer requirement (as described below) and any G-SIB Surcharge (which is not applicable to us) and the countercyclical capital buffer requirement applicable to the Company generally would be effective twelve months after the announcement of such an increase, unless the Federal Reserve sets an earlier effective date.
The Company’s stress capital buffer requirement is recalibrated every year based on the Company’s supervisory stress test results, unless otherwise determined by the Federal Reserve. In particular, the Company’s stress capital buffer requirement equals, subject to a floor of 2.5%, the sum of (i) the difference between the Company’s starting CET1 capital ratio and its lowest projected CET1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the Company’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the Company’s projected CET1 capital ratio reaches its minimum under the supervisory stress test.
Based on the Company’s 2024 supervisory stress test results, the Company’s stress capital buffer requirement for the period beginning on October 1, 2024 through September 30, 2025 was 5.5%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework were 10.0%, 11.5% and 13.5%, respectively, for the period from October 1, 2024 through September 30, 2025 .
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Table of ContentsBased on the Company’s 2025 supervisory stress test results, the Company’s final stress capital buffer requirement for the period beginning on October 1, 2025 through September 30, 2026 is 4.5%. On February 4, 2026, the Federal Reserve notified all participating firms, including the Company, that because the Stress Testing Transparency Proposal remains subject to public comment, the Federal Reserve is maintaining stress capital buffer requirements for all such firms at their current levels. Consequently, absent further action from the Federal Reserve, the Company’s stress capital buffer requirement will remain at 4.5% until September 30, 2027. Accordingly, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 9.0%, 10.5% and 12.5%, respectively, for the period from October 1, 2025 through September 30, 2027.
For additional information regarding the SCB Averaging Proposal and the Stress Testing Transparency Proposal, see “Part I—Item 1. Business—Supervision and Regulation.”
The Stress Capital Buffer Rule does not apply to the Bank. Pursuant to the OCC’s capital regulations, which are only applicable to the Bank, the capital conservation buffer for the Bank continues to be fixed at 2.5%. The Bank is also subject to the countercyclical capital buffer requirement (which is currently set at 0%). Any determination to increase the countercyclical capital buffer applicable to the Bank generally would be effective twelve months after the announcement of such an increase, unless the OCC sets an earlier effective date. Accordingly, the Bank’s minimum capital requirements plus its capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios are 7.0%, 8.5% and 10.5%, respectively.
If the Company or the Bank fails to maintain its capital ratios above the minimum capital requirements plus the applicable capital conservation buffer requirements, it will face increasingly strict automatic limitations on capital distributions and discretionary bonus payments to certain executive officers.
As of December 31, 2025 and 2024, respectively, the Company and the Bank each exceeded the minimum capital requirements and the capital conservation buffer requirements applicable to them, and the Company and the Bank were each “well-capitalized.” The “well-capitalized” standards applicable to the Company are established in the Federal Reserve’s regulations, and the “well-capitalized” standards applicable to the Bank are established in the OCC’s PCA capital requirements.Market Risk RuleThe “Market Risk Rule” supplements the Basel III Capital Rules by requiring institutions subject to the rule to adjust their risk-based capital ratios to reflect the market risk in their trading book. The Market Risk Rule generally applies to institutions with aggregate trading assets and liabilities equal to 10% or more of total assets or $1 billion or more. As of December 31, 2025, the Company and the Bank are subject to the Market Risk Rule. See “Market Risk Profile” below for additional information.For the description of the regulatory capital rules to which we are subject, including recent proposed amendments to these rules under the Basel III Finalization Proposal, see “Part I—Item 1. Business—Supervision and Regulation.”93
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Table 12 provides a comparison of our regulatory capital ratios under the Basel III standardized approach, the regulatory minimum capital adequacy ratios and the applicable well-capitalized standards as of December 31, 2025 and 2024.
Table 12: Capital Ratios Under Basel III (1)(2)
December 31, 2025 December 31, 2024
Ratio Minimum Capital Adequacy Well- Capitalized Ratio
Minimum Capital Adequacy Well- CapitalizedCapital One Financial Corp:Common equity Tier 1 capital (3)
14.3 % 4.5 % N/A 13.5 % 4.5 % N/A
Tier 1 capital (4)
15.3 6.0 6.0 % 14.8 6.0 6.0 %
Total capital (5)
17.2 8.0 10.0 16.4 8.0 10.0
Tier 1 leverage (6)
12.5 4.0 N/A 11.6 4.0 N/A
Supplementary leverage (7)
10.6 3.0 N/A 9.9 3.0 N/ACONA:Common equity Tier 1 capital (3)
13.4 4.5 6.5 13.6 4.5 6.5
Tier 1 capital (4)
13.4 6.0 8.0 13.6 6.0 8.0
Total capital (5)
15.1 8.0 10.0 15.2 8.0 10.0
Tier 1 leverage (6)
10.9 4.0 5.0 10.7 4.0 5.0
Supplementary leverage (7)
9.3 3.0 N/A 9.2 3.0 N/A__________
(1) Capital requirements that are not applicable are denoted by “N/A.”(2) Capital ratios as of December 31, 2024 reflect the Company’s and the Bank’s election to adopt the optional five-year transition period provided by the Federal Banking Agencies’ final rule (“CECL Transition Rule”) as of January 1, 2020, which was fully effective January 1, 2025.
(3) Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.
(4) Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.
(5) Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.
(6) Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.
(7) Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.
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Table of ContentsTable 13 presents regulatory capital under the Basel III standardized approach and regulatory capital metrics as of December 31, 2025 and 2024.Table 13: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics(Dollars in millions) December 31, 2025 December 31, 2024Regulatory capital under Basel III standardized approachCommon equity excluding AOCI
$ 113,677 $ 65,823Adjustments and deductions:
AOCI, net of tax (1)81 1
Goodwill, net of related deferred tax liabilities (28,217) (14,786)
Other intangible and deferred tax assets, net of deferred tax liabilities (12,493) (231)
Common equity Tier 1 capital 73,048 50,807
Tier 1 capital instruments 5,407 4,845
Tier 1 capital 78,455 55,652
Tier 2 capital instruments 2,940 1,307
Qualifying allowance for credit losses 6,605 4,846
Tier 2 capital 9,545 6,153
Total capital $ 88,000 $ 61,805Regulatory capital metricsRisk-weighted assets $ 511,794 $ 377,145Adjusted average assets (2)629,997 480,794Total leverage exposure (3)737,911 559,399__________
(1) Excludes certain components of AOCI in accordance with rules applicable to Category III institutions. See “Capital Management—Capital Standards and Prompt Corrective Action—Basel III and U.S. Capital Rules” in this Report.
(2) Includes on-balance sheet asset adjustments subject to deduction from Tier 1 capital under the Basel III Capital Rules.
(3) Reflects on- and off-balance sheet amounts for the denominator of the supplementary leverage ratio as set forth by the Basel III Capital Rules.95Capital One Financial Corporation (COF)
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Dividend Policy and Stock PurchasesOn November 4, 2025, our Board of Directors authorized an increase to our quarterly common stock dividend from $0.60 per share to $0.80 per share beginning with our dividend payable in the fourth quarter of 2025. For the year ended December 31, 2025, we declared and paid common stock dividends of $1.5 billion, or $2.60 per share. We declared and paid $252 million of preferred stock dividends for the year ended December 31, 2025.
The following table summarizes the dividends paid per share on our various preferred stock series in each quarter of 2025.
Table 14: Preferred Stock Dividends Paid Per Share (1)
Series Description Issuance Date Per Annum Dividend Rate Dividend Frequency 2025Q4 Q3 Q2 Q1
Series I 5.000% Non-Cumulative September 11, 2019 5.000% Quarterly $12.50 $12.50 $12.50 $12.50Series J 4.800% Non-Cumulative January 31, 2020 4.800% Quarterly 12.00 12.00 12.00 12.00
Series K 4.625% Non-Cumulative September 17, 2020 4.625% Quarterly 11.56 11.56 11.56 11.56
Series L 4.375% Non-Cumulative May 4, 2021 4.375% Quarterly 10.94 10.94 10.94 10.94Series M 3.950% Fixed Rate Reset Non-Cumulative June 10, 2021 3.950% through 8/31/2026; resets 9/1/2026 and every subsequent 5 year anniversary at 5-Year Treasury Rate +3.157% Quarterly 9.88 9.88 9.88 9.88Series N 4.250% Non-Cumulative July 29, 2021 4.250% Quarterly 10.63 10.63 10.63 10.63
Series O
Fixed-to-Floating Rate Non-Cumulative May 18,
2025
5.500% through 10/29/2027; resets 10/30/2027 and every quarter thereafter at three-month term SOFR + 3.338% Semi-Annually through 10/30/2027; Quarterly thereafter
2,750.00 — — N/A
Series P (2)
6.125% Fixed-Rate Reset
Non-Cumulative
May 18, 2025 6.125% through 9/22/2025; resets 9/23/2025 and every subsequent 5 year anniversary at 5-Year Treasury Rate +5.783%
Semi-Annually N/A N/A 1,650.35 N/A
__________
(1) For Series I, J, K, L, M and N, the liquidation preference for each share of non-cumulative perpetual preferred stock is $1,000 per share of preferred stock. For Series O and P, the liquidation preference for each share of non-cumulative perpetual preferred stock is $100,000 per share of preferred stock. For Series I, J, K, L and N, ownership is held in the form of depositary shares, each representing a 1/40th interest in a share of non-cumulative perpetual preferred stock. For Series O and P, ownership is held in the form of depositary shares, each representing a 1/100th interest in a share of non-cumulative perpetual preferred stock.
(2) Series P was fully redeemed on June 30, 2025.
The declaration and payment of dividends to our stockholders, as well as the amount thereof, are subject to the discretion of our Board of Directors and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory requirements and other factors deemed relevant by the Board of Directors.
As a BHC, our ability to pay dividends is largely dependent upon the receipt of dividends or other payments from our subsidiaries. The Bank is subject to regulatory restrictions that limit its ability to transfer funds to our BHC. As of December 31, 2025, funds available for dividend payments from the Bank were $1.4 billion. There can be no assurance that we will declare and pay any dividends to stockholders.
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Table of ContentsOn October 20, 2025, our Board of Directors authorized the repurchase of up to $16 billion of shares of the Company’s common stock, effective October 21, 2025. This new authorization replaces the Company’s prior authorization to repurchase its common stock approved by our Board of Directors in April 2022. During the fourth quarter of 2025, we repurchased a total of $2.5 billion of our common stock, consisting of $614 million under the prior authorization and $1.9 billion under the new authorization. For the year ended December 31, 2025, we repurchased $3.8 billion of shares of our common stock as a part of the publicly announced plans.
The timing and exact amount of any future common stock repurchases will depend on various factors, including market conditions, opportunities for growth, our capital position and the amount of retained earnings, as well as regulatory considerations. The Board authorized stock repurchase program does not include specific price targets or number of shares, may be executed through open market purchases, tender offers, or privately negotiated transactions, including utilizing Rule 10b5-1 plans, does not have a set expiration date and may be modified, suspended or terminated at any time. For additional information on dividends and stock repurchases, see “Part I—Item 1. Business—Supervision and Regulation—Prudential Regulation of Banking— Funding and Dividends from Subsidiaries. ”
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Table of ContentsRISK MANAGEMENT
Risk Management FrameworkOur Framework sets consistent expectations for risk management across the Company. It also sets expectations for our “Three Lines of Defense” model, which defines the roles, responsibilities and accountabilities for taking and managing risk across the Company. Accountability for overseeing an effective Framework resides with our Board of Directors either directly or through its committees.First LineIdentifies and Owns Risk Second Line
Advises & Challenges First Line Third LineProvides Independent Assurance
Definition Business areas that are accountable for risk and responsible for: i) generating revenue or reducing expenses; ii) supporting the business to provide products or services to customers; or iii) providing technology services for the first line. Independent Risk Management (“IRM”) and Support Functions (e.g., Human Resources, Accounting, Legal) that provide support services to the Company. Internal Audit and Credit Review.Key Responsibilities Identify, assess, measure, monitor, control and report the risks associated with their business. IRM: Independently oversees and assesses risk taking activities for the first line of defense.Support Functions: Centers of specialized expertise that provide support services to the enterprise. Provides independent and objective assurance to the Board of Directors and senior management that the systems and governance processes are designed and working as intended.98Capital One Financial Corporation (COF)
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Our Framework sets consistent expectations for risk management across the Company and consists of the following nine elements:
Governance and Accountability
Strategy and Risk Alignment
Risk Identification
Assessment, Measurement and Response
Monitoring and Testing
Aggregation, Reporting and Escalation
Capital and Liquidity Management (including Stress Testing)
Risk Data and Enabling Technology
Culture and Talent Management
Governance and Accountability
This element of the Framework sets the foundation for the methods for governing risk taking and the interactions within and among our three lines of defense.We established a risk governance structure and accountabilities to effectively and consistently oversee the management of risks across the Company. Our Board of Directors, CEO and management establish the tone at the top regarding the culture of the Company, including management of risk. Management reinforces expectations at the various levels of the organization.Strategy and Risk AlignmentOur strategy is informed by and aligned with risk appetite, from development to execution. The CEO develops the strategy with input from the first, second and third lines of defense, as well as the Board of Directors. The strategic planning process considers relevant changes to the Company’s overall risk profile.Our Board of Directors approves a Risk Appetite Statement for the Company to set forth the high-level principles that govern risk taking at the Company. The Risk Appetite Statement defines the Board of Directors’ tolerance for certain risk outcomes at an enterprise level and enables senior management to manage and report within these boundaries. This Risk Appetite Statement is also supported by risk category specific risk appetite statements as well as metrics and, where appropriate, Board Limits and Board Notification Thresholds.
Risk Identification
The first line of defense and certain Support Functions identify new and emerging risks, including concentration of risk, across the relevant risk categories associated with their business activities and objectives, in consultation with IRM. Risk identification also must be informed by major changes in infrastructure or organization, introduction of new products and services, acquisitions of businesses, or substantial changes in the internal or external environment.
IRM and certain Support Functions, where appropriate, provide effective challenge in the risk identification process. IRM is also responsible for identifying our material aggregate risks on an ongoing basis.99Capital One Financial Corporation (COF)
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Assessment, Measurement and Response
Management assesses risks associated with our activities. Risks identified are assessed to understand the severity of each risk and likelihood of occurrence under both normal and stressful conditions. Risk severity is measured through modeling and other quantitative estimation approaches, as well as qualitative approaches, based on management judgment. As part of the risk assessment process, the first and second lines of defense also evaluate the effectiveness of the existing control environment and mitigation strategies.
Management determines the appropriate risk response. Risks may be mitigated or accepted. Actions taken to respond to the risk include implementing new controls, enhancing existing controls, developing additional mitigation strategies to reduce the impact of the risk, and/or monitoring the risk.
Monitoring and Testing
Management periodically monitors risks to evaluate and measure how the risk is affecting our strategy and business objectives, in alignment with risk appetite, including established concentration risk limits. The scope and frequency of monitoring activities depends on the results of relevant risk assessments, as well as specific business risk operations and activities.
The first line of defense is required to evaluate the effectiveness of risk management practices and controls through testing and other activities. IRM and Support Functions, as appropriate, assess the first line of defense’s evaluation of risk management, which may include conducting effective challenge, performing independent monitoring, or conducting risk or control validations. The third line of defense provides independent assurance for first and second line risk management practices and controls.
Aggregation, Reporting and Escalation
Risk aggregation supports strategic decision making and risk management practices through collectively reporting risks across different levels of the Company and providing a comprehensive view of performance against risk appetite. Our risk aggregation processes are designed to aggregate risk information from lower levels of the business hierarchy to high levels and to aggregate risk information to determine material risk themes.
Material risks, new or emerging risks, aggregate risks, risk appetite metrics and other measures across all risk categories are reported to the appropriate governance forum no less than quarterly. Material risks are reported to the Board of Directors and senior management committees no less than quarterly.
Capital and Liquidity Management (including Stress Testing)Our capital management processes are linked to our risk management practices, including the enterprise-wide identification, assessment and measurement of risks to ensure that all relevant risks are incorporated in the assessment of the Company's capital adequacy. We use identified risks to inform key aspects of the Company’s capital planning, including the development of stress scenarios, the assessment of the adequacy of post-stress capital levels, and the appropriateness of potential capital actions considering the Company’s capital objectives. We quantify capital needs through stress testing, regulatory capital, economic capital and assessments of market considerations. In assessing its capital adequacy, we identify how and where our material risks are accounted for within the capital planning process. Monitoring and escalation processes exist for key capital thresholds and metrics to continuously monitor capital adequacy.We manage liquidity risk by applying our Liquidity Adequacy Framework (the “Liquidity Framework”). The Liquidity Framework uses internal and regulatory stress testing and the evaluation of other balance sheet metrics to confirm that we maintain a fortified balance sheet that is resilient to uncertainties that may arise as a consequence of systemic, idiosyncratic, or combined liquidity events.
Risk Data and Enabling Technology
Risk data and technology provides the basis for risk reporting and is used in decision making and to monitor and review changes to our risk profile. There are core Governance, Risk Management and Compliance systems which are used as the system of record for risks, controls, issues and events for our risk categories and supports the analysis, aggregation and reporting capabilities across the categories.100Capital One Financial Corporation (COF)
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Culture and Talent Management
The Framework must be supported with the right culture, talent and skills to enable effective risk management across the Company.
Every associate at the Company is responsible for risk management; however, associates with specific risk management skills and expertise within the first, second and third lines of defense are critical to execute appropriate risk management across the enterprise.
Risk Categories
We apply our Framework to protect the Company from the major categories of risk that we are exposed to through our business activities. We have seven major categories of risk as noted below.
Major Categories of Risk
Compliance The risk to current or anticipated earnings or capital arising from violations of laws, rules or regulations. Compliance risk can also arise from nonconformance with prescribed practices, internal policies and procedures, contractual obligations or ethical standards that reinforce those laws, rules or regulations
Credit The risk to current or projected financial condition and resilience arising from an obligor’s failure to meet the terms of any contract with the Company or otherwise perform as agreed
Liquidity The risk that the Company will not be able to meet its future financial obligations as they come due, or invest in future asset growth because of an inability to obtain funds at a reasonable price within a reasonable time
Market The risk that an institution’s earnings or the economic value of equity could be adversely impacted by changes in interest rates, foreign exchange rates or other market factors
Operational The risk of loss, capital impairment, adverse customer experience or reputational impact resulting from failure to comply with policies and procedures, failed internal processes or systems, or from external events
Reputation The risk to market value, recruitment and retention of talented associates and maintenance of a loyal customer base due to the negative perceptions of our internal and external constituents regarding our business strategies and activities
Strategic The risk of a material impact on current or anticipated earnings, capital, franchise or enterprise value arising from the Company’s competitive and market position and evolving forces in the industry that can affect that position; lack of responsiveness to these conditions; strategic decisions to change the Company’s scale, market position or operating model; or, failure to appropriately consider implementation risks inherent in the Company’s strategyThe Company is in the process of integrating Discover Financial Services into its existing risk management practices, policies and processes.We provide an overview of how we manage our seven major categories of risk below.
Compliance Risk Management
We recognize that compliance requirements for financial institutions are increasingly complex and that there are heightened expectations from our regulators and our customers. In response, we continuously evaluate the regulatory environment and proactively adjust our compliance program to fully address these expectations.Our Compliance Management Program establishes expectations for determining compliance requirements, assessing the risk of new product offerings, creating appropriate controls and training to address requirements, monitoring for control performance,
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Table of Contentsand independently testing for adherence to compliance requirements. The program also establishes regular compliance reporting to senior business leaders, the executive committee and the Board of Directors.The Chief Compliance Officer is responsible for establishing and overseeing our Compliance Management Program. Business areas incorporate compliance requirements and controls into their business policies, standards, processes and procedures. They regularly monitor and report on the efficacy of their compliance controls and our Compliance team periodically independently tests to validate the effectiveness of business controls.
Credit Risk ManagementWe recognize that we are exposed to cyclical changes in credit quality. Consequently, we try to ensure our credit portfolio is resilient to economic downturns. Our most important tool in this endeavor is sound underwriting. In unsecured consumer loan underwriting, we generally assume that loans will be subject to an environment in which losses are higher than those prevailing at the time of underwriting. In commercial underwriting, we generally require strong cash flow, collateral, covenants and guarantees. In addition to sound underwriting, we continually monitor our portfolio and take steps to collect or work out distressed loans.The Chief Credit and Financial Risk Officer, in conjunction with the Chief Credit Officers, is responsible for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit exposure and performance of our lending related transactions. Our Chief Credit Officers are responsible for evaluating the risk implications of credit strategy and the oversight of credit for both the existing portfolio and any new credit investments. They also have formal approval authority for various types and levels of credit decisions, including individual commercial loan transactions. Division Presidents within each segment are responsible for managing the credit risk within their divisions and maintaining processes to control credit risk and comply with credit policies and guidelines. In addition, the Chief Credit and Financial Risk Officer establishes policies, delegates approval authority and monitors performance for non-loan credit exposure entered into with financial counterparties or through the purchase of credit sensitive securities in our investment portfolio.
Our credit policies establish standards in five areas: customer selection, underwriting, monitoring, remediation and portfolio management. The standards in each area provide a framework comprising specific objectives and control processes. These standards are supported by detailed policies and procedures for each component of the credit process. Starting with customer selection, our goal is to generally provide credit on terms that generate above hurdle returns. We use a number of quantitative and qualitative factors to manage credit risk, including setting credit risk limits and guidelines for each of our lines of business. We monitor performance relative to these guidelines and report results and any required mitigating actions to appropriate senior management committees and our Board of Directors.Liquidity Risk ManagementWe recognize that liquidity risk is embedded within our day-to-day and strategic decisions. Liquidity is essential for banks to meet customer withdrawals, account for balance sheet changes and provide funding for growth. We have acquired and built deposit gathering businesses and actively monitor our funding concentration. We manage our liquidity risk, which is driven by both internal and external factors, centrally and establish quantitative risk limits to continually assess our liquidity adequacy.The Chief Credit and Financial Risk Officer, in conjunction with the Head of Liquidity, Market and Capital Risk Oversight, is responsible for the establishment of liquidity risk management policies and standards for governance and monitoring of liquidity risk at a corporate level. We assess liquidity strength by evaluating several different balance sheet metrics under severe stress scenarios to ensure we can withstand significant funding degradation. Results are reported to the Asset Liability Committee monthly and to the Risk Committee no less than quarterly. We also continuously monitor market and economic conditions to evaluate emerging stress conditions and to develop appropriate action plans in accordance with our Contingency Funding Plan and our Recovery Plan.
We use internal and regulatory stress testing and the evaluation of other balance sheet metrics within our Liquidity Framework to confirm we maintain a fortified balance sheet. We rely on a combination of stable and diversified funding sources, along with a stockpile of liquidity reserves, to effectively manage our liquidity risk. We maintain a sizable liquidity reserve of cash and cash equivalents, high-quality unencumbered securities and investment securities and certain loans that are either readily-marketable or pledgeable. We also continue to maintain access to secured and unsecured debt markets through regular issuance.102Capital One Financial Corporation (COF)
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Market Risk Management
We recognize that interest rate and foreign exchange risk are present in our business due to the nature of our assets and liabilities. Market risk is inherent from the financial instruments associated with our business operations and activities including loans, deposits, securities, short-term borrowings, long-term debt and derivatives. We manage market risk exposure, which is principally driven by balance sheet interest rate risk, centrally and establish quantitative risk limits to monitor and control our exposure.The Chief Credit and Financial Risk Officer, in conjunction with the Head of Liquidity, Market and Capital Risk Oversight, is responsible for the establishment of market risk management policies and standards for the governance and monitoring of market risk at a corporate level. The market risk position is calculated and analyzed against pre-established limits. We use industry accepted techniques to analyze and measure interest rate and foreign exchange risk and we perform sensitivity analysis to identify our risk exposures under a broad range of scenarios. Results are reported to the Asset Liability Committee monthly and to the Risk Committee no less than quarterly.Management is authorized to utilize financial instruments as outlined in our policy to actively manage market risk exposure. Investment securities and derivatives are the main levers for the management of interest rate risk. In addition, we also use derivatives to manage our foreign exchange risk.
Operational Risk Management
We recognize the criticality of managing operational risk on both a strategic and day-to-day basis and that there are heightened expectations from our regulators and our customers. We have implemented appropriate operational risk management policies, standards, processes and controls to enable the delivery of high quality and consistent customer experiences and to achieve business objectives in a controlled manner.The Chief Operational Risk Officer, in collaboration with the CTRO, is responsible for establishing and overseeing our Operational Risk Management Program. The program establishes practices for assessing the operational risk profile and executing key control processes for operational risks. These risks include topics such as internal and external fraud, cyber and technology risk, data management, model risk, third-party management, and business continuity. Operational Risk Management and Tech and Data Risk Management enforce these practices and deliver reporting of operational risk results to senior business leaders, the executive committee and the Board of Directors. For additional information on how we manage cybersecurity and technology risk, see “Part I—Item 1C. Cybersecurity” of this Report.Reputation Risk ManagementWe define reputation risk as the risk of a material impact to Capital One’s business objectives or franchise value due to the negative perceptions held by our key constituents, including our associates, customers, legislators, regulators, the media, investors, and our communities, regarding our business strategies and activities. Our approach to reputation risk management is guided by our commitment to provide intuitive, easy-to-use products and services, and deliver high quality and consistent customer experiences, with a focus on business continuity, resilience and compliance with applicable laws and regulations. The Executive Vice President of External Affairs is responsible for managing our overall reputation risk program. Day-to-day activities are controlled by the frameworks set forth in our Reputation Risk Management Policy and other risk management policiesStrategic Risk ManagementWe recognize that strategic risk is present within our business and the Company’s strategy. We monitor risks for the impact on current or future earnings, capital growth or enterprise value arising from changes to the Company’s competitive and market positions, including as a result of evolving forces in the industry. Additionally, we monitor timely and effective responsiveness to these conditions, strategic decisions that impact the Company’s scale, market position or operating model and failure to appropriately consider implementation risks in the Company’s strategy. Potential areas of opportunity or risk inform the Company’s strategy, which is led by the CEO and other senior executives. The Chief Enterprise Risk Officer, in consultation with the Chief Credit and Financial Risk Officer, oversees the identification and assessment of risks associated with the Company’s strategy and the monitoring of these risks throughout the year.
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Our Strategic Risk Management Policy, processes and controls encompass an ongoing assessment of risks associated with corporate or line of business specific strategies. These risks are managed through periodic reviews, along with regular updates to senior management and the Board.
CREDIT RISK PROFILEOur loan portfolio accounts for the substantial majority of our credit risk exposure. Through the Transaction, we acquired new lending products, including personal loans. Our lending activities are governed under our credit policies and are subject to independent review and approval. Below we provide information about the composition of our loan portfolio, key concentrations and credit performance metrics.We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “Consolidated Balance Sheets Analysis—Investment Securities” and “Item 8. Financial Statements and Supplementary Data—Note 3—Investment Securities” as well as credit risk related to derivative transactions in “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”
Primary Loan Products
We provide a variety of lending products. Our primary loan products include credit cards, auto loans and commercial lending products.• Credit cards: Consists of our domestic consumer card lending, personal loans, domestic small business card lending and international card businesses in the U.K. and Canada. We originate credit cards and personal loans through a variety of channels. Our credit cards generally have variable interest rates and personal loans have fixed interest rates. Both our credit cards and personal loans are primarily underwritten using an automated underwriting system based on predictive models that we have developed. The underwriting criteria are established based on an analysis of the expected revenues, expenses and losses, and are designed to be resilient to a variety of stress scenarios. Underwriting decisions are generally based on credit bureau information, including Fair Isaac Corporation (“FICO”) scores, and on other factors, such as applicant income. We maintain a credit card securitization program.
• Auto: We originate auto loans through a network of auto dealers and direct marketing. Our auto loans have fixed interest rates. Our underwriting criteria are based on analysis of expected revenues, expenses and losses, and are designed to be resilient to a variety of stress scenarios. Underwriting decisions are generally based on credit bureau information including FICO scores, an applicant’s information, including income and collateral characteristics such as loan-to-value (“LTV”) ratio. We maintain an auto securitization program.
• Commercial: We offer a range of commercial lending products, including loans secured by commercial real estate and loans to middle market commercial and industrial companies. Our commercial loans may have a fixed or variable interest rate; however, the majority of our commercial loans have variable rates. Our underwriting standards require an analysis of the borrower’s financial condition and prospects, as well as an assessment of the industry in which the borrower operates. Where relevant, we evaluate and appraise underlying collateral and guarantees. We maintain underwriting guidelines and limits for major types of borrowers and loan products that specify, where applicable, guidelines for debt service coverage, leverage, LTV ratio and standard covenants and conditions. We assign a risk rating and establish a monitoring schedule for loans based on the risk profile of the borrower, industry segment, source of repayment, the underlying collateral and guarantees, if any, and current market conditions. Although we generally retain the commercial loans we underwrite, we may syndicate positions for risk mitigation purposes, including bridge financing transactions we have underwritten. In addition, we originate and service multifamily commercial real estate loans which are sold to GSE or Agency where we retain certain levels of residual risk after the loans are sold.
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Portfolio of Loans Held for InvestmentOur loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. The information presented in this section excludes loans held for sale, which totaled $760 million and $202 million as of December 31, 2025 and 2024, respectively.
Table 15 presents the maturities of our loans held for investment portfolio as of December 31, 2025. Determinations of maturities are based on scheduled repayments. Due to the revolving nature of credit card loans, we report the majority of our credit card loans as due in one year or less.Table 15: Loan Maturity ScheduleDecember 31, 2025(Dollars in millions) Due Up to 1 Year > 1 Year to 5 Years > 5 Years to 15 Years > 15 Years Total
Fixed rate:
Credit card$ 40,636 $ 7,612 $ 491 — $ 48,739
Consumer banking 18,854 58,231 7,377 $ 49 84,511
Commercial banking 1,250 4,635 4,808 1,097 11,790
Total fixed-rate loans 60,740 70,478 12,676 1,146 145,040Variable rate:Credit card 230,831 — — — 230,831
Consumer banking 260 10 9 — 279
Commercial banking 11,905 57,547 8,020 — 77,472
Total variable-rate loans 242,996 57,557 8,029 — 308,582
Total loans $ 303,736 $ 128,035 $ 20,705 $ 1,146 $ 453,622
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Geographic CompositionWe market our credit card products throughout the United States, the U.K. and Canada. Our credit card loan portfolio is geographically diversified due to our product and marketing approach. The table below presents the geographic profile of our domestic credit card loan portfolio as of December 31, 2025 and 2024.
Table 16: Domestic Credit Card Portfolio by Geographic Region
December 31, 2025 December 31, 2024(Dollars in millions) Amount % of Total Amount % of Total
Domestic credit card:California $ 25,430 9.7% $ 15,978 10.3%
Texas 23,197 8.8 13,430 8.6
Florida 20,050 7.7 12,039 7.7
New York 16,664 6.4 10,010 6.4
Pennsylvania 11,363 4.3 6,299 4.1
Illinois 11,001 4.2 5,921 3.8
Ohio 9,520 3.6 5,314 3.4
New Jersey 8,741 3.3 5,097 3.3
Georgia 8,429 3.2 4,965 3.2North Carolina7,429 2.8 4,477 2.9
Other 120,579 46.0 72,088 46.3
Total domestic credit card
$ 262,403 100.0% $ 155,618 100.0%
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Table 17: Auto Loan Portfolio by Geographic Region
December 31, 2025 December 31, 2024(Dollars in millions) Amount % of Total Amount % of Total
Auto:Texas $ 10,802 12.9% $ 9,459 12.3%
California 8,561 10.2 8,786 11.4
Florida 7,397 8.8 6,866 8.9
Ohio 4,014 4.8 3,402 4.4
Pennsylvania 3,806 4.6 3,408 4.4
Illinois 3,401 4.1 3,124 4.1
Georgia 3,330 4.0 2,962 3.9
North Carolina 2,746 3.3 2,504 3.3
New Jersey 2,603 3.1 2,662 3.5
New York 2,502 3.0 2,498 3.3
Other 34,438 41.2 31,158 40.5
Total auto $ 83,600 100.0% $ 76,829 100.0%
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Table of ContentsWe originate commercial and multifamily real estate loans in most regions of the United States. The table below presents the geographic profile of our commercial real estate portfolio as of December 31, 2025 and 2024.Table 18: Commercial Real Estate Portfolio by RegionDecember 31, 2025 December 31, 2024(Dollars in millions) Amount % of Total Amount % of Total
Geographic concentration: (1)Northeast $ 12,149 36.1 % $ 12,152 38.1 %
South 7,724 23.0 7,900 24.8
Pacific West 5,477 16.3 4,213 13.2
Mid-Atlantic 3,200 9.5 2,901 9.1Mountain2,719 8.1 2,536 7.9Midwest2,349 7.0 2,201 6.9
Total $ 33,618 100.0 % $ 31,903 100.0 %__________
(1) Geographic concentration is generally determined by the location of the borrower’s business or the location of the collateral associated with the loan. Northeast consists of CT, MA, ME, NH, NJ, NY, PA, RI and VT. South consists of AL, AR, FL, GA, KY, LA, MS, NC, OK, SC, TN and TX. Pacific West consists of: AK, CA, HI, OR and WA. Mid-Atlantic consists of DC, DE, MD, VA and WV. Midwest consists of: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD and WI. Mountain consists of: AZ, CO, ID, MT, NM, NV, UT and WY.108Capital One Financial Corporation (COF)
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Commercial Loans by IndustryTable 19 summarizes our commercial loans held for investment by industry classification as of December 31, 2025 and 2024. Industry classifications below are based on our interpretation of the Federal Loan Classification codes as they pertain to each individual loan.Table 19: Commercial Loans by Industry(Percentage of portfolio) December 31, 2025 December 31, 2024Industry Classification:Finance
42 % 39 %
Real Estate & Construction
25 26Government & Education 8 8Commercial Services 4 4Health Care & Pharmaceuticals 3 4
Food & Beverage Manufacturing & Wholesale3 3Oil, Gas & Pipelines
2 3
Technology, Telecommunications & Media
2 3
Other 11 10Total 100 % 100 %109Capital One Financial Corporation (COF)
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Credit Risk MeasurementWe closely monitor economic conditions and loan performance trends to assess and manage our exposure to credit risk. Trends in delinquency rates are the key credit quality indicator for our credit card, personal loans and retail banking loan portfolios as changes in delinquency rates can provide an early warning of changes in potential future credit losses. The key indicator we monitor when assessing the credit quality and risk of our auto loan portfolio is borrower credit scores as they provide insight into borrower risk profiles, which give indications of potential future credit losses. The key credit quality indicator for our commercial loan portfolio is our internal risk ratings as we generally classify loans that have been delinquent for an extended period of time and other loans with significant risk of loss as nonperforming. In addition to these credit quality indicators, we also manage and monitor other credit quality metrics such as level of nonperforming loans and net charge-off rates.We underwrite most consumer loans using proprietary models, which typically include credit bureau data, such as borrower credit scores, application information and, where applicable, collateral and deal structure data. We continuously adjust our management of credit lines and collection strategies based on customer behavior and risk profile changes. We also use borrower credit scores for subprime classification, for competitive benchmarking and, in some cases, to drive product segmentation decisions.Table 20 provides details on the credit scores of our domestic credit card, personal and auto loan portfolios as of December 31, 2025 and 2024.Table 20: Credit Score Distribution(Percentage of portfolio) December 31, 2025 December 31, 2024Domestic credit card—Refreshed FICO scores: (1)Greater than 660 73 % 69 %
660 or below 27 31Total 100 % 100 %Personal loans — Refreshed FICO scores: (1)
Greater than 660 94 % N/A
621 - 660 3 N/A
620 or below 3 N/A
Total 100 % N/AAuto — At origination FICO scores: (2)Greater than 660 51 % 54 %
621 - 660 19 19
620 or below 30 27Total 100 % 100 %
__________(1) Percentages represent period-end loans held for investment in each credit score category. Domestic credit card and personal loan credit scores generally represent FICO scores. These scores are obtained from one of the major credit bureaus at origination and are refreshed monthly thereafter and may be based on different versions of FICO over time. We approximate non-FICO credit scores to comparable FICO scores for consistency purposes. Balances for which no credit score is available or the credit score is invalid are included in the 660 or below category for Domestic credit card and 620 or below for personal loans.
(2) Percentages represent period-end loans held for investment in each credit score category. Auto loan credit scores generally represent average FICO scores obtained from three credit bureaus at the time of application and are not refreshed thereafter. Balances for which no credit score is available or the credit score is invalid are included in the 620 or below category.In our commercial loan portfolio, we assign internal risk ratings to loans based on relevant information about the ability of the borrowers to repay their debt. In determining the risk rating of a particular loan, some of the factors considered are the borrower’s current financial condition, historical and projected future credit performance, prospects for support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends.We present information in the section below on the credit performance of our loan portfolio, including the key metrics we use in tracking changes in the credit quality of our loan portfolio. See “Item 8. Financial Statements and Supplementary Data—Note 4—Loans” for additional credit quality information and see “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our accounting policies for delinquent and nonperforming loans, charge-offs and loan modifications and restructurings.
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Delinquency RatesWe consider the entire balance of an account to be delinquent if the minimum required payment is not received by the customer’s due date, measured at each balance sheet date. Our 30+ day delinquency metrics include all loans held for investment that are 30 or more days past due, whereas our 30+ day performing delinquency metrics include all loans held for investment that are 30 or more days past due but are currently classified as performing and accruing interest. The 30+ day delinquency and 30+ day performing delinquency metrics are the same for domestic credit card loans, as we continue to classify these loans as performing until the account is charged off, typically when the account is 180 days past due. See “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our policies for classifying loans as nonperforming. We provide additional information on our credit quality metrics in “Business Segment Financial Performance.”
Table 21 presents our 30+ day performing delinquency rates and 30+ day delinquency rates of our portfolio of loans held for investment, by portfolio, as of December 31, 2025 and 2024.Table 21: 30+ Day DelinquenciesDecember 31, 2025 December 31, 202430+ Day Performing Delinquencies 30+ Day Delinquencies 30+ Day Performing Delinquencies 30+ Day Delinquencies
(Dollars in millions) Amount Rate (1)
Amount Rate (1)
Amount Rate (1)
Amount Rate (1)
Credit Card:Domestic credit card $ 10,471 3.99 % $ 10,471 3.99 % $ 7,053 4.53 % $ 7,053 4.53 %
Personal loans
165 1.74 174 1.83 N/A N/A N/A N/A
International card businesses 355 4.62 364 4.75 311 4.52 320 4.64
Total credit card 10,991 3.93 11,009 3.94 7,364 4.53 7,373 4.54Consumer Banking:Auto 4,371 5.23 4,842 5.79 4,572 5.95 5,229 6.81
Retail banking 13 1.09 19 1.60 14 1.12 26 2.05
Total consumer banking 4,384 5.17 4,861 5.73 4,586 5.87 5,255 6.73Commercial Banking:Commercial and multifamily real estate 55 0.16 117 0.35 40 0.13 170 0.53
Commercial and industrial 33 0.06 314 0.56 99 0.18 242 0.44
Total commercial banking 88 0.10 431 0.48 139 0.16 412 0.47
Total $ 15,463 3.41 $ 16,301 3.59 $ 12,089 3.69 $ 13,040 3.98__________
(1) Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category.111Capital One Financial Corporation (COF)
Table of ContentsTable 22 presents our 30+ day delinquent loans held for investment, by aging and geography, as of December 31, 2025 and 2024.Table 22: Aging and Geography of 30+ Day Delinquent LoansDecember 31, 2025 December 31, 2024(Dollars in millions) Amount Rate (1)
Amount Rate (1)
Delinquency status:30 – 59 days $ 6,492 1.43 % $ 5,276 1.61 %
60 – 89 days 3,773 0.83 3,138 0.96> 90 days6,036 1.33 4,626 1.41
Total $ 16,301 3.59 % $ 13,040 3.98 %Geographic region:Domestic $ 15,937 3.51 % $ 12,720 3.88 %
International 364 0.08 320 0.10
Total $ 16,301 3.59 % $ 13,040 3.98 %__________
(1) Delinquency rates are calculated by dividing delinquency amounts by total period-end loans held for investment.Table 23 summarizes loans that were 90+ days delinquent, in regards to interest or principal payments, and still accruing interest as of December 31, 2025 and 2024. These loans consist primarily of credit card accounts between 90 days and 179 days past due. As permitted by regulatory guidance issued by the FFIEC, we continue to accrue interest and fees on domestic credit card loans through the date of charge off, which is typically in the period the account becomes 180 days past due.Table 23: 90+ Day Delinquent Loans Accruing InterestDecember 31, 2025 December 31, 2024(Dollars in millions) Amount Rate (1)
Amount Rate (1)Loan segment:
Credit card $ 5,352 1.91 % $ 3,711 2.28 %
Commercial banking — — 96 0.11
Total $ 5,352 1.18 $ 3,807 1.16Geographic region:Domestic $ 5,195 1.16 % $ 3,673 1.14 %
International 157 2.05 134 1.95
Total $ 5,352 1.18 $ 3,807 1.16__________
(1) Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category.112Capital One Financial Corporation (COF)
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Nonperforming Loans and Nonperforming AssetsNonperforming loans include loans that have been placed on nonaccrual status. Nonperforming assets consist of nonperforming loans, repossessed assets and other foreclosed assets. See “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our policies for classifying loans as nonperforming for each of our loan portfolios.
Table 24 presents our nonperforming loans by portfolio and other nonperforming assets as of December 31, 2025 and 2024. We do not classify loans held for sale as nonperforming. We provide additional information on our credit quality metrics in “Business Segment Financial Performance.”Table 24: Nonperforming Loans and Other Nonperforming Assets (1)December 31, 2025 December 31, 2024(Dollars in millions) Amount Rate Amount Rate
Nonperforming loans held for investment: (2)
Credit Card:Personal loans
$ 12 0.13 % N/A N/A
International card businesses 12 0.16 $ 10 0.15 %
Total credit card 24 0.01 10 0.01Consumer Banking:Auto 566 0.68 750 0.98
Retail banking 17 1.45 25 1.94
Total consumer banking 583 0.69 775 0.99Commercial Banking:Commercial and multifamily real estate 320 0.95 509 1.60
Commercial and industrial 892 1.60 701 1.27
Total commercial banking 1,212 1.36 1,210 1.39Total nonperforming loans held for investment (3)1,819 0.40 1,995 0.61Other nonperforming assets (4)115 0.03 65 0.02
Total nonperforming assets $ 1,934 0.43 $ 2,060 0.63__________(1) We recognized interest income for loans classified as nonperforming of $96 million and $111 million in 2025 and 2024, respectively.(2) Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each respective category.(3) Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was 0.95% and 1.16% as of December 31, 2025 and 2024, respectively.(4) The denominators used in calculating nonperforming asset rates consist of total loans held for investment and other nonperforming assets.113Capital One Financial Corporation (COF)
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Net Charge-OffsNet charge-offs consist of the amortized cost basis, excluding accrued interest, of loans held for investment that we determine to be uncollectible, net of recovered amounts. Recoveries are recognized for payments received after a loan has been charged off, up to the amount that was charged off. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged off loans as well as additional strategies, such as litigation. Uncollectible finance charges and fees are reversed through revenue and certain fraud losses are recorded in other non-interest expense. Generally, costs to recover charged off loans are recorded as collection expenses as incurred and are included in our consolidated statements of income as a component of other non-interest expense. Our charge-off policy for loans varies based on the loan type. See “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” for information on our charge-off policy for each of our loan portfolio.
Table 25 presents our net charge-off amounts and rates, by portfolio, in 2025, 2024 and 2023.Table 25: Net Charge-Offs (Recoveries)
Year Ended December 31,2025 2024 2023(Dollars in millions) Amount Rate (1)
Amount Rate (1)
Amount Rate (1)Credit Card (2) :
Domestic credit card $ 10,971 5.12 % $ 8,634 5.91 % $ 6,164 4.56 %
Personal loans
232 3.83 N/A N/A N/A N/A
International card businesses 368 5.14 353 5.15 308 4.84
Total credit card 11,571 5.09 8,987 5.88 6,472 4.57Consumer Banking:Auto 1,234 1.54 1,528 2.05 1,308 1.72
Retail banking 60 4.93 65 5.11 56 3.89
Total consumer banking 1,294 1.59 1,593 2.10 1,364 1.76Commercial Banking:Commercial and multifamily real estate (3) (0.01) 87 0.26 489 1.34
Commercial and industrial 240 0.43 81 0.15 89 0.16
Total commercial banking 237 0.27 168 0.19 578 0.62
Total net charge-offs $ 13,102 3.30 $ 10,748 3.39 $ 8,414 2.70
Average loans held for investment $ 396,725 $ 317,421 $ 311,541__________
(1) Net charge-off rates are calculated by dividing net charge-offs by average loans held for investment for the period for each loan category.(2) Charge-offs exclude $19.4 billion of Discover loans acquired in the second quarter of 2025 that were fully charged-off, with expected recoveries of $3.3 billion included as a benefit to the allowance for credit losses.
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Financial Difficulty Modifications to Borrowers
A financial difficulty modification (“FDM”) occurs when a modification in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, a term extension or a combination of these modifications is granted to a borrower experiencing financial difficulty.
As part of our loss mitigation efforts, we may provide short-term (one to twelve months) or long-term (greater than twelve months) modifications to a borrower experiencing financial difficulty to improve long-term collectibility of the loan and to avoid the need for repossession or foreclosure of collateral.
We consider the impact of all loan modifications, including FDMs, when estimating the credit quality of our loan portfolio and establishing allowance levels. For our Commercial Banking customers, loan modifications are also considered in the assignment of an internal risk rating.
In our Credit Card business, the majority of our FDMs receive an interest rate reduction and are placed on a fixed payment plan not exceeding 60 months. If the customer does not comply with the modified payment terms, then the credit card loan agreement may revert to its original payment terms, generally resulting in any loan outstanding being reflected in the appropriate delinquency category and charged off in accordance with our standard charge-off policy.
In our Consumer Banking business, the majority of our FDMs receive an extension, an interest rate reduction, principal reduction, or a combination of these modifications.
In our Commercial Banking business, the majority of our FDMs receive an extension. A portion of FDMs receive an interest rate reduction, principal reduction, or a combination of modifications.For more information on FDMs, see “Item 8. Financial Statements and Supplementary Data—Note 4—Loans.”Allowance for Credit Losses and Reserve for Unfunded Lending CommitmentsOur allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. Charge-offs of uncollectible amounts result in a reduction to the allowance and recoveries of previously charged off amounts are credited to the allowance. We also estimate expected credit losses related to unfunded lending commitments that are not unconditionally cancellable. The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses in “Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
115Capital One Financial Corporation (COF)
Table of ContentsTable 26 presents changes in our allowance for credit losses and reserve for unfunded lending commitments for 2025 and 2024, and details by portfolio for the provision for credit losses, charge-offs and recoveries.Table 26: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
Credit Card Consumer Banking(Dollars in millions) Domestic Card Personal Loans
International Card Businesses Total Credit Card Auto Retail Banking Total Consumer Banking Commercial Banking TotalAllowance for credit losses:Balance as of December 31, 2023 $ 11,261 N/A $ 448 $ 11,709 $ 2,002 $ 40 $ 2,042 $ 1,545 $ 15,296
Charge-offs (10,246) N/A (511) (10,757) (2,674) (84) (2,758) (234) (13,749)
Recoveries (1)
1,612 N/A 158 1,770 1,146 19 1,165 66 3,001
Net charge-offs (8,634) N/A (353) (8,987) (1,528) (65) (1,593) (168) (10,748)
Provision for credit losses 9,867 N/A 405 10,272 1,385 50 1,435 23 11,730
Allowance build (release) for credit losses
1,233 N/A 52 1,285 (143) (15) (158) (145) 982
Other changes (2)
— N/A (20) (20) — — — — (20)
Balance as of December 31, 2024 12,494 N/A 480 12,974 1,859 25 1,884 1,400 16,258Reserve for unfunded lending commitments:Balance as of December 31, 2023 — N/A — — — — — 158 158
Provision (benefit) for losses on unfunded lending commitments — N/A — — — — — (15) (15)
Balance as of December 31, 2024 — N/A — — — — — 143 143
Combined allowance and reserve as of December 31, 2024 $ 12,494 N/A $ 480 $ 12,974 $ 1,859 $ 25 $ 1,884 $ 1,543 $ 16,401Allowance for credit losses:Balance as of December 31, 2024 $ 12,494 — $ 480 $ 12,974 $ 1,859 $ 25 $ 1,884 $ 1,400 $ 16,258
Charge-offs (3)
(14,366) $ (305) (545) (15,216) (2,582) (80) (2,662) (288) (18,166)
Recoveries (1)
3,395 73 177 3,645 1,348 20 1,368 51 5,064
Net charge-offs (10,971) (232) (368) (11,571) (1,234) (60) (1,294) (237) (13,102)
Initial allowance for purchased credit deteriorated loans
2,722 148 — 2,870 — — — — 2,870
Benefit from expected recoveries of charged off loans (4)
(3,135) (170) — (3,305) — — — — (3,305)
Provision for credit losses (5)
17,701 985 380 19,066 1,244 58 1,302 288 20,656
Allowance build (release) for credit losses 6,317 731 12 7,060 10 (2) 8 51 7,119
Other changes (2)
— — 32 32 — — — — 32
Balance as of December 31, 2025 18,811 731 524 20,066 1,869 23 1,892 1,451 23,409Reserve for unfunded lending commitments:Balance as of December 31, 2024 — — — — — — — 143 143
Provision (benefit) for losses on unfunded lending commitments — — — — — — — (1) (1)
Balance as of December 31, 2025 — — — — — — — 142 142
Combined allowance and reserve as of December 31, 2025
$ 18,811 $ 731 $ 524 $ 20,066 $ 1,869 $ 23 $ 1,892 $ 1,593 $ 23,551__________(1) The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged off loans as well as additional strategies, such as litigation.
(2) Primarily represents foreign currency translation adjustments for the year ended December 31, 2025 and 2024.
(3) Charge-offs exclude $19.4 billion of Discover loans acquired in the second quarter of 2025 that were fully charged-off, with expected recoveries of $3.3 billion included as a benefit to the allowance for credit losses.
(4) Represents contractual rights to collect on recoveries of acquired Discover loans that are charged off.
(5) The provision for credit losses includes the initial allowance for credit losses of $8.8 billion for non-PCD loans acquired in the Transaction.
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Allowance Coverage Ratios for Specified Loan CategoryO ur allowance for credit losses increased by $7.2 billion to $23.4 billion as of December 31, 2025 compared to 2024 and our allowance coverage ratio increased by 20 bps to 5.16% as of December 31, 2025 compared to 2024.
The ratio of the allowance for credit losses divided by total nonperforming loans held for investment of $1.8 billion and $2.0 billion as of December 31, 2025 and 2024, respectively, increased by 472% to 1,287% as of December 31, 2025 from 815% as of December 31, 2024. Excluding the impact of the allowance for credit losses related to Domestic Card of $18.8 billion and $12.5 billion as of December 31, 2025 and 2024, respectively, this ratio increased by 64% to 253% as of December 31, 2025 from 189% as of December 31, 2024. The increase in the ratio for the allowance for credit losses divided by total nonperforming loans was driven by an increase in total allowance and a decrease in total nonperforming loans.LIQUIDITY RISK PROFILEWe manage our funding and liquidity risk in an integrated manner in support of the current and future cash flow needs of our business. We maintained liquidity reserv es of $144 billion and $123.8 billion as of December 31, 2025 and 2024 , respectively, as shown in Table 27 below. Included in liquidity reserv es are cash and cash equivalents, investment securities and FHLB borrowing capacity secured by loans.
As of December 31, 2025, we had available issuance capacity of $39.0 billion under shelf registrations associated with our credit card and auto loan securitization programs. We also maintain a shelf registration that enables us to issue an indeterminate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. Our ability to issue under each shelf registration is subject to market conditions.
Finally, as of December 31, 2025, we had access to available contingent liquidity source s totaling $108.9 billion through the prepositioning of collateral, including a portion of the investment securities included in the liquidity reserves amount in the following table, at th e Federal Reserve Discount Window, the Standing Repo Facility, FHLB and the Fixed Income Clearing Corporation - Government Securities Division (“FICC - GSD”).
As of December 31, 2025 and 2024, our funding sources t otaled $526.8 billion and $408.3 billion, resp ectively, primarily composed of consumer deposits, as sh own in “Consolidated Balance Sheets Analysis— Table 6: Funding Sources Composition.”Our liquidity reserves, borrowing capacity, contingent liquidity sources and total funding sources are all discussed in more detail in the following sections.Table 27 below presents the composition of our liquidity reserves as of December 31, 2025 and 2024.Table 27: Liquidity Reserves(Dollars in millions) December 31, 2025 December 31, 2024
Cash and cash equivalents $ 57,434 $ 43,230Securities available for sale (1)91,051 83,013
FHLB borrowing capacity secured by loans 4,447 4,279
Outstanding FHLB advances and letters of credit secured by loans and investment securities (1,839) (48)
Other encumbrances of investment securities (7,121) (6,648)
Total liquidity reserves $ 143,972 $ 123,826________
(1) Includes securities that have been pledged or otherwise encumbered within the below Liquidity Reserves line items “Outstanding FHLB advances and letters of credit secured by loans and investment securities” and “Other encumbrances of investment securities . ”Our liquidity reserves increased by $20.1 billion to $144.0 billion as of December 31, 2025 from December 31, 2024, primarily due to increases in cash and cash equivalents acquired in the Transaction. In addition to these liquidity reserves, we maintain access to a diversified mix of funding sources as discussed in the “Borrowing Cap acity” and “Funding” sections below. See “Part II—Item 7. MD&A—Risk Management” for additional information on our management of liquidity risk.
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Liquidity Coverage RatioWe are subject to the Federal Reserve’s and OCC’s LCR Rule. The LCR Rule requires both the Company and the Bank to calculate its respective LCR daily. It also requires the Company to publicly disclose, on a quarterly basis, its LCR, certain related quantitative liquidity metrics, and a qualitative discussion of its LCR. Our average LCR during the fourth quarter of 2025 wa s 173% , whic h exceeded the LCR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.Net Stable Funding RatioWe are subject to the Federal Reserve’s and OCC’s NSFR Rule. The NSFR Rule requires both the Company and the Bank to maintain an NSFR of 100% on an ongoing basis. It also requires the Company to publicly disclose, on a semi-annual basis each second and fourth quarter, its NSFR, certain related quantitative liquidity metrics and qualitative discussion of its NSF R. Our average NSFR for each of the third and fourth quarter of 2025 was 136%, which exceeded the NSFR Rule requirement of 100%. Th e calculation and the underlying components are based on our interpretations, expectations and assumptions of the relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.Borrowing CapacityWe maintain a shelf registration with the SEC so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. There is no limit under this shelf registration to the amount or number of such securities that we may offer and sell, subject to market conditions. In addition, we also maintain a shelf registration associated with our Capital One Multi-asset Execution Trust (“COMET”) that allows us to periodically offer and sell up to $24.0 billion of securitized debt obligations and a shelf registration associated with our Capital One Prime Auto Receivables Trusts (“COPAR”) that allows us to periodically offer and sell up to $18.6 billion of securitized debt obligations. These shelf registration statements are subject to periodic renewal and, thus, change, which may be reviewed by the SEC at the time of each such renewal. As part of each periodic renewal, we assess registered amounts under each shelf registration statement which may be updated as appropriate. As of December 31, 2025, we had $21.5 billion and $17.5 billion of available issuance capacity in our COMET and COPAR securitization programs, respectively.
In connection with the Transaction, we also acquired a shelf registration associated with the Discover Card Execution Note Trust (“DCENT”). On December 18, 2025, we defeased the outstanding DiscoverSeries Class A Notes issued by DCENT as part of the wind down of that issuance platform. As a result, that shelf registration statement is no longer active.
In addition to our issuance capacity under the shelf registration statements, we also have collateral pledged to support our access to FHLB advances, the Federal Reserve Discount Window, the Standing Repo Facility and FICC - GSD general collateral financing repurchase agreement service. For each of these programs, the ability to borrow utilizing these sources is dependent on meeting the respective membership requirements. Our borrowing capacity in each program is a function of the collateral the Bank has posted with each counterparty, including any respective haircuts applied to that collateral.
A s of December 31, 2025, we pledged loans and securities to the FHLB to secure a maximum borrowing capacity of $34.4 billion , of which $1.3 billion was used. Our FHLB membership is supported by our investment in FHLB stock of $89 million and $18 million as of December 31, 2025 and 2024 , respectively.
As of December 31, 2025, we pledged loans to secure a borrowing capacity of $53.3 billion under the Federal Reserve Discount Window. Our membership with the Federal Reserve is supported by our investment in Federal Reserve stock, which totaled $2.6 billion and $1.3 billion as of December 31, 2025 and 2024 , respectively.
As a member of FICC - GSD, we have $21.2 billion of readily available borrowing capacity secured by securities from our investment portfolio as of December 31, 2025. Our FICC - GSD membership is supported by our investment in Depository Trust and Clearing Corporation (“DTCC”) common stock of $488 thousand and $412 thousand as of December 31, 2025 and 2024 , respectively.
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DepositsTable 28 provides a comparison of the average balances, interest expense and average deposits interest rates for December 31, 2025, 2024 and 2023.Table 28: Deposits Composition and Average Deposits Interest Rates
Year Ended December 31,2025 2024 2023(Dollars in millions) Average Balance Interest Expense Average Deposits Interest Rate Average Balance Interest Expense Average Deposits Interest Rate Average Balance Interest Expense Average Deposit Interest Rate
Interest-bearing checking accounts (1)$ 35,944 $ 433 1.21 % $ 34,904 $ 544 1.56 % $ 41,555 $ 797 1.92 %Saving deposits (2)274,130 8,501 3.10 211,120 7,083 3.36 197,896 5,353 2.71
Time deposits 92,135 3,991 4.33 78,273 3,866 4.94 74,286 3,339 4.49
Total interest-bearing deposits $ 402,209 $ 12,925 3.21 $ 324,297 $ 11,493 3.54 $ 313,737 $ 9,489 3.02__________
(1) Includes negotiable order of withdrawal accounts.
(2) Includes money market deposit accounts.The F DIC limits the acceptance of brokered deposits to well-capitalized insured depository institutions and, with a waiver from the FDIC, to adequately-capitalized instituti ons. The Bank was well-capitalized, as defined under the federal banking regulatory guidelines, as of both December 31, 2025 and 2024 . See “Part I—Item 1. Business—Supervision and Regulation” for additional information. We provide additional information on the composition of deposits in “Consolidated Balance Sheets Analysis—Table 6: Funding Sources Composition ” and in “Item 8. Financial Statements and Supplementary Data—Note 9—Deposits and Borrowings.”FundingOur funding sources in clude deposits, senior and subordinated notes, securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase and FHLB advances secured by certain portions of our loan and securities portfolios. A key objective in our use of these markets is to maintain access to a diversified mix of wholesale funding sources. Insured deposits in our Cons umer Banking business represent our primary source of funding, as they are a relatively stable and low cost source of funding. See “Consolidated Balance Sheets Analysis—Table 6: Funding Sources Composition” for additional information on our primary sources of funding.In the normal course of business, we enter into various contractual obligations that may require future cash payments that affect our short-term and long-term liquidity and capital resource needs. Our future cash outflows primarily relate to deposits, borrowings and operating leases. The actual timing and amounts of future cash payments may vary over time due to a number of factors, such as early debt redemptions and changes in deposit balances.119Capital One Financial Corporation (COF)
Table of ContentsAs of December 31, 2025 and 2024, we held $71.9 billion and $64.9 billion, respectively, of estimated uninsured deposits. These amounts were primarily comprised of checking and savings deposits. These estimated uninsured deposits comprised approximately 15% and 18% of our total deposits as of December 31, 2025 and 2024, respectively. We estimate our uninsured amounts based on methodologies and assumptions used for our “Consolidated Reports of Condition and Income” (FFIEC 031) filed with the Federal Banking Agencies, primarily adjusted to exclude intercompany balances and cash collateral received on certain derivative contracts which are not presented within deposits on our consolidated balance sheet.
Table 29 presents, by contractual maturity, the estimated uninsured portion of total time deposits as of December 31, 2025 and 2024. Our funding and liquidity management activities factor in the expected maturities of these deposits.
Table 29: Amount of Uninsured Time Deposits by Contractual Maturity (1)
December 31, 2025 December 31, 2024(Dollars in millions) Amount % of Total Amount % of TotalUp to three months $ 3,537 27.4 % $ 4,619 45.6 %
> 3 months to 6 months 3,410 26.5 1,675 16.6
> 6 months to 12 months 4,221 32.8 2,596 25.6
> 12 months 1,718 13.3 1,230 12.2
Total $ 12,886 100.0 % $ 10,120 100.0 %__________(1) Some customers have time deposits in excess of the federal deposit insurance limit, making a portion of the deposit uninsured. As of December 31, 2025 and 2024, the total time deposit amount with some portion in excess of the insured amount was $17.4 billion and $15.2 billion, respectively.Short-Term Borrowings and Long-Term Debt
We access the capital markets to meet our funding needs through the issuance of senior and subordinated notes, securitized debt obligations and federal funds purchased and securities loaned or sold under agreements to repurchase. In addition, we have access to short-term and long-term FHLB advances secured by certain investment securities, multifamily real estate loans and commercial real estate loans.Our short-term borrowings, which include those borrowings with an original contractual maturity of one year or less, typically consist of federal funds purchased, securities loaned or sold under agreements to repurchase or short-term FHLB advances, and do not include the current portion of long-term debt. Our short-term borrowings increased by $525 million to $1.1 billion as of December 31, 2025 from December 31, 2024 driven by an increase in FHLB advances.
Our long-term funding, which primarily consists of securitized debt obligations and senior and subordinated notes and FHLB advances, increased by $4.9 billion to $49.9 billion as of December 31, 2025 from December 31, 2024 primarily driven by debt assumed from the Transaction. We provide more information on our securitization activity in “ Item 8. Financial Statements and Supplementary Data —Note 6—Variable Interest Entities and Securitizations” and on our borrowi ngs in “Item 8. Financial Statements and Supplementary Data—Note 9—Deposits and Borrowings.”
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Table of ContentsThe following table summarizes issuances of securitized debt obligations, senior and subordinated notes, long-term FHLB advances and their respective maturities or redemptions for the years ended December 31, 2025, 2024 and 2023.
Table 30: Long-Term Debt Funding Activities
Issuances (1)
Maturities/Redemptions
Year Ended December 31, Year Ended December 31,
(Dollars in millions) 2025 2024 2023 2025 2024 2023
Securitized debt obligations $ 9,396 $ 1,810 $ 3,300 $ 10,934 $ 5,828 $ 2,483
Senior and subordinated notes 11,283 4,000 8,250 6,922 4,411 8,436
FHLB advances 1,773 — — 250 — —
Total $ 22,452 $ 5,810 $ 11,550 $ 18,106 $ 10,239 $ 10,919
__________
(1) Issuances for the year ended December 31, 2025 includes $13.2 billion of debt assumed in the Transaction.Credit RatingsOur credit ratings impact our ability to access capital markets and our borrowing costs. For more information, see “ Part I —Item 1A. Risk Factors”— “A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.”
Table 31 provides a summary of the credit ratings for the senior unsecured long-term debt of Capital One Financial Corporation and CONA as of December 31, 2025 and 2024.Table 31: Senior Unsecured Long-Term Debt Credit RatingsDecember 31, 2025 December 31, 2024Capital One Financial Corporation CONA Capital One Financial Corporation CONA
Moody’s Baa1 A3 Baa1 A3
S&P BBB BBB+ BBB BBB+
Fitch A- A A- AAs of February 13, 2026, Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”) have our credit ratings on a stable outlook and Standard & Poor’s (“S&P”) has our credit ratings on a positive outlook.
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Table of ContentsOther Commitments
In the normal course of business, we enter into other contractual obligations that may require future cash payments that affect our short-term and long-term liquidity and capital resource needs. Our other contractual obligations include lending commitments, leases, purchase obligations and other contractual arrangements.As of December 31, 2025 and 2024, our total unfunded lending commitments were $729.6 billion an d $458.1 billion, respectively, consisting of credit card lines, loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios and applying the same credit standards for all of our credit activities. For additional information, refer to “Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others” in this Report.
Our primary involvement with leases is in the capacity as a lessee where we lease premises to support our business. The majority of our leases are operating leases of office space, retail bank branches and cafés. Our operating leases expire at various dates th rough 2071, although some have extension or termination options, and we assess the likelihood of exercising such options. If it is reasonably certain that we will exercise the options, then we include the impact in the measurement of our right-of-use assets and lease liabilities. As of both December 31, 2025 and 2024 , we had $1.5 billion in a ggregate operating lease obligations, of which $254 million will be due the following 12 months. We provide more information on our lease activity in “Item 8. Financial Statements and Supplementary Data—Note 8—Premises, Equipment and Leases” in this Report.
We have enforceable and legally binding purchase obligations for goods and services such as data management, media and other software and third-party services. As of December 31, 2025 and 2024, we had $3.8 billion and $4 billion, respectively, in aggregate purchase obligations.We also enter into various contractual arrangements that may require future cash payments, including short-term obligations such as trade payables, commitments to fund certain equity investments, obligations for pension and post-retirement benefit plans, and representation and warranty reserves. These arrangements are discussed in more detail in “Item 8. Financial Statements and Supplementary Data—Note 6—Variable Interest Entities and Securitizations,” “Item 8. Financial Statements and Supplementary Data—Note 15—Employee Benefit Plans” and “Item 8. Financial Statements and Supplementary Data—Note 19—Commitments, Contingencies, Guarantees and Others.”MARKET RISK PROFILE
Our primary market risk exposures include interest rate risk, foreign exchange risk and commodity pricing risk. We are exposed to market risk primarily from the following operations and activities:
• Traditional banking activities of deposit gathering and lending;
• Asset/liability management activities including the management of investment securities, short-term and long-term borrowings and derivatives;• Foreign operations within our Credit Card and Consumer Banking businesses; and• Customer accommodation activities within our Commercial Banking business.
We have enterprise-wide risk management policies and limits, approved by our Board of Directors, which govern our market risk management activities. Our objective is to manage our exposure to market risk in accordance with these policies and limits based on prevailing market conditions and long-term expectations. We provide additional information below about our primary sources of market risk, our market risk management strategies and the measures that we use to evaluate these exposures.
Interest Rate Risk
Interest rate risk represents exposure to financial instruments whose values vary with the level or volatility of interest rates. We are exposed to interest rate risk primarily from the differences in the timing between the maturities or repricing of assets and liabilities. We manage our interest rate risk primarily by entering into interest rate swaps and other derivative instruments which could include caps, floors, options, futures and forward contracts.122
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Table of ContentsWe use various industry standard market risk measurement techniques and analyses to measure, assess and manage the impact of changes in interest rates on our net interest income and our economic value of equity and changes in foreign exchange rates on our non-dollar-denominated funding and non-dollar equity investments in foreign operations.As of June 30, 2025, we integrated the acquired assets and assumed liabilities of Discover that are part of our continuing operations into our interest rate risk framework. The Transaction, and subsequent business actions, have resulted in modest impacts to both our net interest income and economic value of equity sensitivities.Net Interest Income SensitivityOur net interest income sensitivity measure estimates the impact of hypothetical instantaneous movements in interest rates relative to our baseline interest rate forecast on our projected 12-month net interest income. Net interest income sensitivity metrics are derived using the following key assumptions :
• As of December 31, 2025, our metrics assume a market implied baseline interest rate projection for the upper limit of the Federal Funds Target Rate of 3.25% at both December 31, 2026 and 2027.• In addition to our existing assets, liabilities and derivative positions, we incorporate expected future business growth assumptions. These assumptions include loan and deposit growth, pricing, plans for projected changes in our funding mix and our securities and cash position from our internal corporate outlook that is used in our financial planning process.
• The analysis assumes this forecast of expected future business growth remains unchanged between the baseline rate forecast and rate shock scenarios, including no changes to our interest rate risk management activities like securities and hedging actions.
• We incorporate the dynamic nature of deposit re-pricing, which includes pricing lags and changes in deposit beta and mix as interest rates change, and the prepayment sensitivity of our mortgage securities to the level of interest rates. In our models, deposit betas and mortgage security prepayments vary dynamically based on the level of interest rates and by product type. In the contexts used in this section, “beta” refers to the change in deposit rate paid relative to the change in the federal funds rate.• In instances where an interest rate scenario would result in a rate less th an 0%, we assume a rate of 0% for that scenario. This assumption applies only to jurisdictions that do not have a practice of employing negative policy rates. In jurisdictions that have negative policy rates, we do not floor interest rates a t 0%.
At the current level of interest rates, our projected 12-month net interest income is expected to increase in higher rate scenarios and decrease in lower rate scenarios. The decrease in lower rate scenarios is driven by lower interest income from our assets, including floating rate credit card and commercial loans, being partially offset by lower interest expense from our deposits and other liabilities, net of our interest rate hedges. Our combined 12-month net interest income sensitivity was largely unchanged as compared to December 31, 2024.
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Table of ContentsEconomic Value of Equity Sensitivity
Our economic value of equity sensitivity measure estimates the impact of hypothetical instantaneous movements in interest rates on the net present value of our assets and liabilities, including derivative exposures. Economic value of equity sensitivity metrics are derived using the following key assumptions:• As of December 31, 2025, our metrics assume a market implied baseline interest rate projection for the upper limit of the Federal Funds Target Rate of 3.25% and 3.25% at both December 31, 2026 and 2027.• The analysis includes only existing assets, liabilities and derivative positions and does not incorporate business growth assumptions or projected balance sheet changes.
• Similar to our net interest income sensitivity measure, we incorporate the dynamic nature of deposit repricing and attrition, which includes pricing lags and changes in deposit beta as interest rates change and the prepayment sensitivity of our mortgage securities to the level of interest rates. In our models, deposit betas and mortgage security prepayments vary dynamically based on the level of interest rates and by product type.• Balance attrition assumptions for loans, including credit card, personal, auto and commercial loans, remain unchanged between the baseline interest rate forecast and interest rate shock scenarios as the majority of these loans are floating rate or shorter duration fixed rate loans and hence paydowns have a low sensitivity to the level of interest rates.• For assets and liabilities with embedded optionality, such as mortgage securities and deposit balances, we utilize Monte Carlo simulations to assess economic value with industry-standard term structure modeling of interest rates.
• Our calculations of net present value apply appropriate spreads over the benchmark yield curve for select assets and liabilities to capture the inherent risks (including credit risk) to discount expected interest and principal cash flows.
• In instances where an interest rate scenario would result in a rate less than 0%, we assume a rate of 0% for that scenario. This assumption applies only to jurisdictions that do not have a practice of employing negative policy rates. In jurisdictions that have negative policy rates, we do not floor interest rates at 0%.Our current economic value of equity sensitivity profile demonstrates that our economic value of equity decreases in higher interest rate scenarios and increases in lower interest rate scenarios. The decrease in higher rate scenarios is due to the declines in the projected value of our fixed rate assets being only partially offset by corresponding movements in the projected value of our deposits and other liabilities. The pace of economic value of equity decrease is larger for the +200 bps scenario as our deposits are assumed to reprice more rapidly in higher interest rate environments.
Our combined economic value of equity sensitivity decreased as compared to December 31, 2024, driven largely by the Transaction. Discover’s assets had a large concentration of short duration, floating rate Credit Card balances and we terminated Discover’s existing interest rate swaps in cash flow hedging relationships as they no longer met the conditions of a qualifying accounting hedge at the Closing Date.
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Table of ContentsTable 32 shows the estimated percentage impact on our projected baseline net interest income and our current economic value of equity calculated under the methodology described above as of December 31, 2025 and 2024.Table 32: Interest Rate Sensitivity AnalysisDecember 31, 2025 December 31, 2024Estimated impact on projected baseline net interest income:+200 basis points 1.0 % 1.3 %
+100 basis points 0.6 0.8
+50 basis points 0.3 0.4
–50 basis points (0.3) (0.4)
–100 basis points (0.7) (0.8)
–200 basis points (2.7) (1.9)Estimated impact on economic value of equity:+200 basis points (4.5) (6.3)
+100 basis points (2.0) (3.0)
+50 basis points (0.9) (1.4)
–50 basis points 0.7 1.3
–100 basis points 1.2 2.5
–200 basis points 1.1 3.9In addition to these industry standard measures, we also consider the potential impact of alternative interest rate scenarios, such as larger rate shocks, higher than +/- 200 bps, as well as steepening and flattening yield curve scenarios in our internal interest rate risk management decisions. We also regularly review the sensitivity of our interest rate risk metrics to changes in our key modeling assumptions, such as our loan and deposit balance forecasts, mortgage prepayments and deposit repricing.
Limitations of Market Risk Measures
The interest rate risk models that we use in deriving these measures incorporate contractual information, internally-developed assumptions and proprietary modeling methodologies, which project borrower and depositor behavior patterns in certain interest rate environments. Other market inputs, such as interest rates, market prices and interest rate volatility, are also critical components of our interest rate risk measures. We regularly evaluate, update and enhance these assumptions, models and analytical tools as we believe appropriate to reflect our best assessment of the market environment and the expected behavior patterns of our existing assets and liabilities.
There are inherent limitations in any methodology used to estimate the exposure to changes in market interest rates. The sensitivity analysis described above contemplates only certain movements in interest rates and is performed at a particular point in time based on our existing balance sheet and, in some cases, expected future business growth and funding mix assumptions. The strategic actions that management may take to manage our balance sheet may differ significantly from our projections, which could cause our actual earnings and economic value of equity sensitivities to differ substantially from the above sensitivity analysis.
For further information on our interest rate exposures, see “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”125Capital One Financial Corporation (COF)
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Foreign Exchange RiskForeign exchange risk represents exposure to changes in the values of current holdings and future cash flows denominated in other currencies. We are exposed to foreign exchange risk primarily from the intercompany funding denominated in pound sterling (“GBP”) and the Canadian dollar (“CAD”) that we provide to our businesses in the U.K. and Canada and net equity investments in those businesses. We are also exposed to foreign exchange risk due to changes in the dollar-denominated value of future earnings and cash flows from our foreign operations and from our Euro (“EUR”)-denominated borrowing.
Our non-dollar denominated intercompany funding and EUR-denominated borrowing expose our earnings to foreign exchange transaction risk. We manage these transaction risks by using forward foreign currency derivatives and cross-currency swaps to hedge our exposures. We measure our foreign exchange transaction risk exposures by applying a 1% U.S. dollar appreciation shock against the value of the non-dollar denominated intercompany funding and EUR-denominated borrowing and their related hedges, which shows the impact to our earnings from foreign exchange risk. Our nominal with interest accrued intercompany funding outstanding was 1.5 billion GBP and 1.3 billion GBP as of December 31, 2025 and 2024, respectively, and 1.1 billion CAD and 1.4 billion CAD as of December 31, 2025 and 2024, respectively. Our nominal EUR-denominated borrowing outstanding with interest accrued were 505 million EUR as of both December 31, 2025 and 2024.
Certain non-dollar equity investments in foreign operations expose our balance sheet and capital ratios to translation risk in AOCI. We manage our translation risk by entering into foreign currency derivatives designated as net investment hedges. We measure these exposures by applying a 30% U.S. dollar appreciation shock, which we believe approximates a significant adverse shock over a one-year time horizon, against the value of the equity invested in our foreign operations net of related net investment hedges where applicable. Our primary exposure is to our U.K. and Canadian operations and the gross equity amounts were 2.3 billion GBP and 2.2 billion GBP as of December 31, 2025 and 2024, respectively, and 2.8 billion CAD and 2.6 billion CAD as of December 31, 2025 and 2024, respectively. Additionally, we have immaterial foreign translation exposure to a small number of other currencies.
As a result of our derivative management activities, we believe our net exposure to foreign exchange risk is minimal. For m ore information, see “ Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities” and “Item 8. Financial Statements and Supplementary Data—Note 11—Stockholders’ Equity.”
Risk Related to Customer Accommodation DerivativesWe offer interest rate, commodity and foreign currency derivatives as an accommodation to our customers within our Commercial Banking business. We offset the majority of the market risk of these customer accommodation derivatives by entering into offsetting derivatives transactions with other counterparties. We use value-at-risk (“VaR”) as the primary method to measure the market risk in our customer accommodation derivative activities on a daily basis. VaR is a statistical risk measure used to estimate the potential loss from movements observed in the recent market environment. We employ a historical simulation approach using the most recent 500 business days and use a 99% confidence level and a holding period of one business day. As a result of offsetting our customer exposures with other counterparties, we believe that our net exposure to market risk in our customer accommodation derivatives is minimal. For further information on our risk related to customer accommodation derivatives, see “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”126Capital One Financial Corporation (COF)
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SUPPLEMENTAL TABLES
Table A—Net Charge-Offs
Year Ended December 31,(Dollars in millions) 2025 2024 2023
Average loans held for investment $ 396,725 $ 317,421 $ 311,541
Net charge-offs 13,102 10,748 8,414
Net charge-off rate 3.30 % 3.39 % 2.70 %Table B— Reconciliation of Non-GAAP MeasuresThe following non-GAAP measures consist of TCE, tangible assets and metrics computed using these amounts, which include tangible book value per common share, return on average tangible assets, return on average TCE and TCE ratio. We consider these metrics to be key financial performance measures that management uses in assessing capital adequacy and the level of returns generated. While these non-GAAP measures are widely used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies, they may not be comparable to similarly-titled measures reported by other companies. The following table presents reconciliations of these non-GAAP measures to the applicable amounts measured in accordance with U.S. GAAP. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with U.S. GAAP.December 31,(Dollars in millions, except as noted) 2025 2024 2023Tangible Common Equity (Period-End):Stockholders’ equity $ 113,616 $ 60,784 $ 58,089Goodwill and other intangible assets (1)(40,876) (15,157) (15,289)
Noncumulative perpetual preferred stock (5,407) (4,845) (4,845)
Tangible common equity $ 67,333 $ 40,782 $ 37,955Tangible Assets (Period-End):Total assets $ 669,009 $ 490,144 $ 478,464Goodwill and other intangible assets (1)(40,876) (15,157) (15,289)
Tangible assets $ 628,133 $ 474,987 $ 463,175Tangible Common Equity (Average):Stockholders’ equity $ 94,542 $ 59,799 $ 55,195Goodwill and other intangible assets (1)(31,904) (15,237) (15,207)
Noncumulative perpetual preferred stock (5,255) (4,845) (4,845)
Tangible common equity $ 57,383 $ 39,717 $ 35,143Tangible Assets (Average):Total assets $ 597,536 $ 480,451 $ 467,807Goodwill and other intangible assets (1)(31,904) (15,237) (15,207)
Tangible assets $ 565,632 $ 465,214 $ 452,600
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December 31,
(Dollars in millions, except as noted) 2025 2024 2023TCE Ratio:Tangible common equity (period-end) $ 67,333 $ 40,782 $ 37,955
Tangible assets (period-end) 628,133 474,987 463,175TCE Ratio (2)10.7% 8.6% 8.2%Tangible Book Value per Share:Tangible common equity (period-end) $ 67,333 $ 40,782 $ 37,955
Outstanding Common Shares 625.1 381.2 380.4Tangible book value per common share (period-end) (3)$ 107.72 $ 106.97 $ 99.78Return on Tangible Assets (Average):Net income $ 2,453 $ 4,750 $ 4,887
Income from discontinued operations, net of tax
365 — —
Net income less income from discontinued operations, net of tax
2,088 4,750 4,887
Tangible assets (Average) 565,632 465,214 452,600Return on tangible assets (4)0.37% 1.02% 1.08%Return on Tangible Common Equity (Average):Net income available to common stockholders $ 2,181 $ 4,445 $ 4,582
Income from discontinued operations, net of tax
365 — —
Net income available to common stockholders less income from discontinued operations, net of tax
1,816 4,445 4,582
Tangible common equity (Average) 57,383 39,717 35,143Return on tangible common equity (5)3.16% 11.18% 13.04%__________
(1) Includes impact of related deferred taxes.
(2) TCE ratio is a non-GAAP measure calculated based on TCE divided by period-end tangible assets.
(3) Tangible book value per common share is a non-GAAP measure calculated based on TCE divided by common shares outstanding.(4) Return on average tangible assets is a non-GAAP measure calculated based on net income (loss) less income (loss) from discontinued operations, net of tax, for the period divided by average tangible assets for the period.
(5) Return on average tangible common equity is a non-GAAP measure calculated based on net income (loss) available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average TCE.
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Table of ContentsGLOSSARY AND ACRONYMS2004 Plan: The Amended and Restated 2004 Stock Incentive Plan.
2019 Cybersecurity Incident: The unauthorized access by an outside individual who obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers that we announced on July 29, 2019.
2022 Call Report: Consolidated Reports of Condition and Income, (“FFIEC 031”) as of December 31, 2022.
Allowance coverage ratio: Allowance for credit losses as a percentage of loans held for investment.Amortized cost basis: The amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, write-offs, foreign exchange and fair value hedge accounting adjustments.AML Act: Anti-Money Laundering Act of 2020, enacted as part of the National Defense Authorization Act, requires the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to issue a number of rules that will update and expand the BSA’s regulatory requirements.Annual Report: References to “this Report” or our “2025 Form 10-K” or “2025 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.Bank: CONA, Capital One Financial Corporation’s principal operating subsidiary.
Basel Committee: The Basel Committee on Banking Supervision.
Basel III Capital Rules: The regulatory capital requirements established by the Federal Banking Agencies in July 2013 to implement the Basel III capital framework developed by the Basel Committee as well as certain Dodd-Frank Act and other capital provisions.
Basel III Finalization Proposal: The notice of proposed rulemaking released by the Federal Banking Agencies on July 27, 2023 to revise the Basel III Capital Rules applicable to banking organizations with total assets of $100 billion or more and their subsidiary depository institutions.
Basel III standardized approach: The Basel III Capital Rules modified Basel I to create the Basel III standardized approach.Capital One Canada: Capital One Bank (Canada Branch).
Capital One or the Company: Capital One Financial Corporation and its subsidiaries.Carrying value (with respect to loans ) : The amount at which a loan is recorded on the consolidated balance sheets. For loans recorded at amortized cost basis, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For credit card loans, the carrying value also includes interest that has been billed to the customer, net of any related reserves. Loans held for sale are recorded at either fair value (if we elect the fair value option) or at the lower of cost or fair value.CECL: In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This ASU requires an impairment model (known as the CECL model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. This guidance was effective for us on January 1, 2020.CECL Transition Rule: A rule adopted by the Federal Banking Agencies and effective in 2020 that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital.
Closing Date: The Transaction was completed on May 18, 2025.
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Table of ContentsCODM : The Chief Operating Decision Maker for each of our business segments.
Common equity Tier 1 (“CET1”) capital: CET1 capital primarily includes qualifying common shareholders’ equity, retained earnings and certain AOCI amounts less certain deductions for goodwill, intangible assets, and certain deferred tax assets.
CONA: Capital One, National Association, one of our wholly-owned subsidiaries, which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.
CONA Bank Merger: The merger of Discover Bank, a Delaware-chartered bank and wholly owned subsidiary of Discover, with and into CONA, with CONA as the surviving entity.Contingency Funding Plan: A plan that describes the Company’s event management process and management response plans to ensure that the Company is prepared to respond to a liquidity crisis and to maintain the liquidity necessary to fund normal operating requirements. The plan establishes liquidity monitoring, quantitative assessment (including sizing of potential access to alternative contingent liquidity resources), qualitative and quantitative triggers that would signal risk, the liquidity event management process, and annual testing of the different components of the CFP.Credit risk: The risk to current or projected financial condition and resilience arising from an obligor’s failure to meet the terms of any contract with the Company or otherwise perform as agreed.
Deposit Insurance Fund (“DIF”): A fund maintained by the FDIC to provide insurance coverage for certain deposits. It is funded through assessments on banks.
Derivative: A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, credit worthiness for credit default swaps or financial or commodity indices.Diners Club: Diners Club International, a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded charge cards and/or provide card acceptance services.Discontinued operations: The operating results of a component of an entity, as defined by Accounting Standards Codification 205, that are removed from continuing operations when that component has been disposed of or it is management’s intention to sell the component.Discover: Discover Financial Services, a Delaware corporation.
Discover Network: The network which processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement services.Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”): Regulatory reform legislation signed into law on July 21, 2010. This law broadly affects the financial services industry and contains numerous provisions aimed at strengthening the sound operation of the financial services sector.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Expanded Risk-Based Approach: The proposed framework for calculating risk-weighted assets for credit risk, operational risk, credit valuation adjustment risk and market risk that was introduced by the Basel III Finalization Proposal.
eXtensible Business Reporting Language (“XBRL”): A language for the electronic communication of business and financial data.
Federal Banking Agencies: The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.
Federal Deposit Insurance Corporation (“FDIC”): An independent U.S. governmental agency that administers the Deposit Insurance Fund.
Federal Reserve: The Board of Governors of the Federal Reserve System.
FFIEC 031: Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices filed quarterly with the Federal Banking Agencies.130Capital One Financial Corporation (COF)
Table of ContentsFICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical modeling software created by FICO (formerly known as “Fair Isaac Corporation”) utilizing data collected by the credit bureaus.Financial Difficulty Modification (“FDM”): A FDM is deemed to occur when a loan modification is made to a borrower experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of these modifications in the current reporting period. FDMs became effective with the adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023.
Foreign exchange contracts: Contracts that provide for the future receipt or delivery of foreign currency at previously agreed-upon terms.
Framework: The Capital One enterprise-wide risk management framework.Global Payment Network: The Discover Network, PULSE Network, Diners Club International and Network Partners, collectively.GSE or Agency: A government-sponsored enterprise or agency is a financial services corporation created by the United States Congress. Examples of U.S. government agencies include Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (“Ginnie Mae”) and the Federal Home Loan Bank (“FHLB”).Globally Systematically Important Bank Surcharge (“G-SIB Surcharge”): The capital buffer imposed on U.S. banking organizations designated as global systematically important banks (“G-SIBs”) under the Federal Reserve’s capital framework. The surcharge increases a G-SIB’s minimum Common Tier Equity 1 (CET1) capital requirement based on its systematic risk score, which considers factors such as size, interconnectedness, complexity, cross-jurisdictional activity and sustainability.Interest method: Method of amortization used to arrive at periodic interest income at a constant effective yield on the net investment in a financial asset.
Interest rate sensitivity: The exposure to interest rate movements.
Interest rate swaps: Contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. Interest rate swaps are the most common type of derivative contract that we use in our asset/liability management activities.
Investment grade: Represents a Moody’s long-term rating of Baa3 or better; and/or a S&P long-term rating of BBB- or better; and/or a Fitch long-term rating of BBB- or better; or if unrated, an equivalent rating using our internal risk ratings. Instruments that fall below these levels are considered to be non-investment grade.Investor Entities: Entities that invest in community development entities (“CDE”) that provide debt financing to businesses and non-profit entities in low-income and rural communities.LCR Rule: The final rules published by the Basel Committee and as implemented by the Federal Banking Agencies in 2014 for the Basel III Liquidity Coverage Ratio (“LCR”) in the United States. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid assets by its estimated net cash outflow, as defined and calculated in accordance with the LCR Rule.
Leverage ratio: Tier 1 capital divided by average assets after certain adjustments, as defined by regulators.
Liquidity risk: The risk that the Company will not be able to meet its future financial obligations as they come due, or invest in future asset growth because of an inability to obtain funds at a reasonable price within a reasonable time.
Loan-to-value (“LTV”) ratio: The relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral securing the loan.
LTD Proposal: The proposed rule released by the Federal Banking Agencies on August 29, 2023 that would require banking organizations with $100 billion or more in total assets to comply with certain long-term debt requirements and clean holding company requirements.131Capital One Financial Corporation (COF)
Table of ContentsLoss severity: Loss given default.
Managed presentation: A non-GAAP presentation of business segment results derived from our internal management accounting and reporting process, which employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenues and expenses directly or indirectly attributable to each business segment. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources and are intended to reflect each segment as if it were a stand-alone business.Market risk: The risk that an institution’s earnings or the economic value of equity could be adversely impacted by changes in interest rates, foreign exchange rates or other market factors.
Master netting agreement: An agreement between two counterparties that have multiple contracts with each other that provides for the net settlement of all contracts through a single payment in the event of default or termination of any one contract.Measurement Period : The duration of time allowed after a merger closing date for fair value estimation of the related assets acquired and liabilities assumed.Merger Agreement: Agreement and Plan of Merger, dated as of February 19, 2024, by and among Discover, Capital One and Merger Sub.
Merger: The merger of Merger Sub with and into Discover, with Discover as the surviving entity, pursuant to the Merger Agreement.
Merger Sub: Vega Merger Sub, Inc.Mortgage servicing rights (“MSRs”): The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections of principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.
Net charge-off rate : Represents (annualized) net charge-offs divided by average loans held for investment for the period. Negative net charge-offs and related rates are captioned as net recoveries.
Net interest margin: Represents (annualized) net interest income divided by average interest-earning assets for the period.Network Partners: Financial institutions, financial technology firms, networks, network-to-network partners and other commercial service providers which we have agreements with for the provision of card issuing, payments processing and related services on the Global Payment Network.Nonperforming loans: Generally include loans that have been placed on nonaccrual status. We do not report loans classified as held for sale as nonperforming.
NSFR Rule: The final rules published by the Basel Committee and as issued by the Federal Banking Agencies in October 2020 implementing the net stable funding ratio (“NSFR”) in the United States. The NSFR measures the stability of our funding profile and requires us to maintain minimum amounts of stable funding to support our assets, commitments and derivatives exposures over a one-year period.
Patriot Act: The USA PATRIOT Act of 2001.Proxy Statement: Proxy statement for the 2026 Annual Stockholder Meeting.Public Fund Deposits: Deposits that are derived from a variety of political subdivisions such as school districts and municipalities.PULSE Network: The network which operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE Network with access to ATMs domestically and internationally, as well as merchant acceptance throughout the U.S. for debit card transactions.
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Table of ContentsPurchase Plan: Our Associate Stock Purchase Plan, which is a compensatory plan under the accounting guidance for stock-based compensation.
Purchase volume: Consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.
Rating agency: An independent agency that assesses the credit quality and likelihood of default of an issue or issuer and assigns a rating to that issue or issuer.
Recovery Plan: A plan that describes the Company’s approach for effectively responding to severely-adverse stress at both CONA and the Company. The Recovery Plan establishes qualitative and quantitative triggers for CONA and the Company that would signal the risk or existence of severely-adverse stress at the respective entity and identifies several specific remedial actions for recovery status that the Company can use to effectively respond to the stress environment. The Recovery Plan is separate from, but complementary to, the CFP.
Repurchase agreement: An instrument used to raise short-term funds whereby securities are sold with an agreement for the seller to buy back the securities at a later date.
Restructuring charges: Charges associated with the realignment of resources supporting various businesses, primarily consisting of severance and related benefits pursuant to our ongoing benefit programs and impairment of certain assets related to the business locations and/or activities being exited.
Risk Committee: The Risk Committee of the Board of Directors.
Risk-weighted assets: On- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default.
Second Step Merger: The merger of Discover with and into Capital One, with Capital One as the surviving entitySecuritized debt obligations: A type of asset-backed security and structured credit product constructed from a portfolio of fixed-income assets.
Stress capital buffer requirement: A component of our standardized approach capital conservation buffer, which is recalibrated annually based on the results of our supervisory stress tests.
Stress Capital Buffer Rule: The final rule issued by the Federal Reserve in March 2020 to implement the stress capital buffer requirement.
Subprime: For purposes of lending in our Credit Card business, we generally consider FICO scores of 660 or below, or other equivalent risk scores, to be subprime. For purposes of auto lending in our Consumer Banking business, we generally consider FICO scores of 620 or below to be subprime.
Tangible common equity (“TCE”): A non-GAAP financial measure calculated as common equity less goodwill and other intangible assets inclusive of any related deferred tax liabilities.This Report: This Annual Report on Form 10-K for the period ended December 31, 2025.
Transaction: On May 18, 2025, we completed the acquisition of Discover in an all-stock transaction as outlined in the Merger Agreement dated February 19, 2024.
Trapped Liquidity: The amount of high-quality liquid assets (HQLA) held by a bank that may not be transferred to other affiliates. This amount is excluded from the bank's HQLA amount.Troubled debt restructuring (“TDR”): A TDR is deemed to occur when the contractual terms of a loan agreement are modified by granting a concession to a borrower that is experiencing financial difficulty. The accounting guidance for TDRs was eliminated by ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , which we adopted as of January 1, 2023.
Unfunded lending commitments: Legally binding agreements to provide a defined level of financing until a specified future date.133
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Table of ContentsU.S. GAAP: Accounting principles generally accepted in the United States of America. Accounting rules and conventions defining acceptable practices in preparing financial statements in the U.S.
U.S. Real Gross Domestic Product (“GDP”) : An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.
Variable interest entity (“VIE”): An entity that, by design, either (i) lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) has equity investors that do not have (a) the ability to make significant decisions relating to the entity’s operations through voting rights, (b) the obligation to absorb the expected losses, and/or (c) the right to receive the residual returns of the entity.
Virginia Financial Institution Holding Company Act: Chapter 7 of Title 6.2 of the Code of Virginia governing the acquisition of interests in Virginia financial institutions.134Capital One Financial Corporation (COF)
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Acronyms
ABS: Asset-backed securities
ACL: Allowance for credit losses
AML: Anti-money launderingAI: Artificial IntelligenceAOCI: Accumulated other comprehensive income
ASU: Accounting Standards Update
ATM: Automated teller machine
AWS: Amazon Web Services, Inc.
BHC: Bank holding company
BHC Act: The Bank Holding Company Act of 1956, as amended.
bps: Basis points
BSA: The Bank Secrecy Act
CAD: Canadian dollar
CAP: Compliance Assurance Process
CCPA: California Consumer Privacy Act (as amended by the California Privacy Rights Act)CBP : Community Benefits PlanCCP: Central Counterparty Clearinghouse, or Central Clearinghouse
CDE: Community development entities
CECL: Current expected credit loss
CEO: Chief Executive Officer
CET1: Common equity Tier 1 capital
CFO: Chief Financial Officer
CFPB: Consumer Financial Protection Bureau
CFTC: Commodity Futures Trading Commission
CIBC: Change in Bank Control Act
CIO: Chief Information Officer
CIRCIA: Cyber Incident Reporting for Critical Infrastructure Act
CISA: Cybersecurity and Infrastructure Security Agency
CISO: Chief Information Security OfficerCMBS: Commercial mortgage-backed securities
CME: Chicago Mercantile Exchange
CODM: Chief Operating Decision Maker
COEP: Capital One (Europe) plc
COF: Capital One Financial CorporationCOMET: Capital One Multi-asset Execution TrustCONA : Capital One, National Association
COSO: Committee of Sponsoring Organizations of the Treadway Commission
CRA: Community Reinvestment Act
CTRO: Chief Technology Risk OfficerCOPAR: Capital One Prime Auto Receivables TrustsCVA: Credit valuation adjustmentDCENT: Discover Card Execution Note Trust
135
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Table of ContentsDCF: Discounted cash flow
DFAST: Dodd-Frank Act Stress TestsDIF : Deposit Insurance Fund
DRR: Designated Reserve Ratio
DTCC: Depository Trust and Clearing Corporation
DVA: Debit valuation adjustment
ECRP: Enterprise Cyber Response Plan
EU: European Union
EU GDPR: EU General Data Protection Regulation
EUR: Euro
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCAC: Financial Consumer Agency of Canada
FCM: Futures commission merchant
FCRA: Fair Credit Reporting Act
FDM: Financial difficulty modification
FDIC: Federal Deposit Insurance Corporation
FDICIA: Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC: Federal Financial Institutions Examination Council
FHC: Financial Holding Company
FHLB: Federal Home Loan Bank
FICC - GSD : Fixed Income Clearing Corporation - Government Securities Division
FICO: Fair Isaac Corporation
FinCEN: Financial Crimes Enforcement Network
FINRA: Financial Industry Regulatory Authority
FIS: Fidelity Information Services
Fitch: Fitch Ratings
Freddie Mac: Federal Home Loan Mortgage Corporation
FS-ISAC: Financial Services Information Sharing and Analysis Center
FVC: Fair Value Committee
GAAP: Generally accepted accounting principles in the U.S.
GBP: Pound sterlingGDPR: General Data Protection Regulation
Ginnie Mae: Government National Mortgage Association
GLBA: Gramm-Leach-Bliley Act
G-SIB: Global systemically important banks
GSE or Agency: Government-sponsored enterprise
HFI: Held for Investment
HQLA: High-Quality Liquid Assets
ICE: Intercontinental Exchange
IRM: Independent Risk Management
IRS: Internal Revenue Service
LCH: LCH Group136
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Table of ContentsLCR: Liquidity coverage ratio
LLC: Limited liability company
LTV: Loan-to-Value
Moody’s: Moody’s Investors Service
MSRs: Mortgage servicing rightsNOIT: Notice of Intent to TerminateNon-PCD: Non-purchased credit deterioratedNSFR: Net stable funding ratio
NYSE: New York Stock Exchange
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income
OFAC: Office of Foreign Assets ControlOSFI: Office of the Superintendent of Financial Institutions
OTC: Over-the-counter
PCA: Prompt corrective action
PCAOB: Public Company Accounting Oversight Board
PCCR: Purchased credit card relationship
PCD: Purchased Credit-Deteriorated
PIPEDA: Personal Information Protection and Electronic Document ActPSU: Performance share units
RMBS: Residential mortgage-backed securities
ROU: Right-of-useRSU: Restricted stock unit
S&P: Standard & Poor’s
SEC: U.S. Securities and Exchange Commission
SOFR: Secured Overnight Financing Rate
TCE: Tangible common equity
TDR: Troubled debt restructuring
TILA: Truth in Lending Act
TSYS: Total System Services LLC
U.K.: United Kingdom
U.K. GDPR: U.K. General Data Protection Regulation
U.S.: United States of America
USD: United States Dollar
VAC: Valuations Advisory Committee
VaR: Value-At-Risk
VIE: Variable interest entity
VOE: Voting interest entity137Capital One Financial Corporation (COF)
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